How It Works
Remortgaging to fund a business works the same as any capital raising remortgage: you take out a new, larger mortgage on your home and receive the extra funds as cash. You can then invest this money in your business venture — whether that's equipment, stock, premises, marketing or working capital.
The key difference from other uses of remortgage funds is the risk profile. Lenders know that businesses can fail, and some are cautious about approving capital raising specifically for business purposes. Being honest about how you'll use the money is essential, and a mortgage broker experienced in capital raising can advise on which lenders are most accommodating.
The Risks Involved
The most significant risk is straightforward: if your business fails and you can't meet the increased mortgage repayments, your home is at risk of repossession. Around 60% of new UK businesses fail within their first three years, so this is not a remote possibility.
Before remortgaging, ask yourself honestly whether you could continue to make the higher mortgage repayments if the business produced no income at all for six to twelve months. If the answer is no, you should consider whether this approach is right for you. Having a financial safety net — such as savings to cover several months of mortgage payments — is essential.
What Lenders Think About Business Funding
Some mainstream lenders will approve a remortgage for business purposes, while others are more cautious. Lenders who do accept it will assess your affordability based on your existing income (not projected business income), your equity position, and your overall financial stability.
If a lender declines your application because of the business purpose, a broker may be able to find alternatives. Some specialist lenders are more comfortable with entrepreneurial borrowers, particularly those with a track record in business or a strong business plan.
Alternative Funding Sources
Before risking your home, consider these business funding alternatives:
- Start Up Loans — government-backed unsecured personal loans of up to £25,000 for new businesses, with free mentoring
- Business grants — various local and national grants are available, particularly for innovative or socially beneficial businesses
- Small business loans — high street and challenger banks offer loans specifically designed for business purposes
- Angel investors or crowdfunding — if your business idea is strong, investors may fund it without you risking your home
- Bootstrapping — starting small, using personal savings, and growing organically
A combination of these sources can often raise enough to get a business off the ground without putting your home at risk.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.