Remortgage to pay off business overdraft - advice please

lea

Hi,

Sorry if this is a basic question but I am new to mortgages and businesses and it is not my expertise!

My partner and I live in his property, which he owns outright and is worth approx 200K. He has his own business (set up in the last couple of years) which has a business overdraft of around 125k.
The bank want to convert the overdraft into a business loan with a high APR which will mean high monthly repayments and could put the business under huge financial pressure. Additionally, we would ideally like another 10k to invest in further stock and product development.
The business is developing well but we have had to outlay a lot initially for stock and start up business costs hence the debt.

Is it possible to remortgage the house in the region of 140k to release some of the equity to repay the business loan and get the 10k to invest further?
I earn approximately 33k, my partner around 12k at the moment.

Any advice greatly appreciated as this is new to us!

Thanks,
Lea

kingstreet

He would have to accept a transfer of equity into joint names, as your income is needed for that level of borrowing, so you'd need to apply for a joint remortgage.

I'm sure some lenders won't fancy the purpose of the loan, but at that LTV you'll get some takers.

I suggest a whole market broker, to save yourselves some time.

lea

Thank you for your quick reply.
Would it just be a case of looking on the market and finding a mortgage we think we would like to apply for, or are some lenders better for this sort of loan than others?
Thanks again
Lea

kingstreet

There are lenders who will not do this, because of the purpose of the loan.

Either research this yourself, but do not apply and go through pointless credit searches to be told they won't lend for this; or appoint a whole market broker who will probably know who to approach from experience.

Old_Git

If the business goes bust you could loose your home .
If you do get a mortgage the interest part it is still tax deductable for business purposes .

lea

We realise if the business doesnt succeed we will be left with the mortgage, but hopefully it would be affordable still with my salary and we would just be in a similar position to many other people who have a mortgage?
Would the maximum amount we can borrow still be based on our earnings, or could we borrow up to a certain percentage of the property value?
Thanks again

kingstreet

Lenders will allow upto a certain percentage of the value of the property for "capital raising/debt consolidation" but this will be subject to the usual affordability calculations, which is why I said you'll have to do a TofE at the same time, as it isn't affordable on his income alone.

getmore4less

Is the house already up as collateral on the business OD?

What's the life cycle of the stock and lead times.

Any ways to make the stock work harder reducing the capital held in the stock.

holly_hobby

As Kingstreet states, and its from experience, lenders aren't and have never been mad on business injection capital raising, for obvious reasons (esp as in this case its essentially to repay a business od thats essentially being pulled by the bank).

And as Kings. has stated several times, you will need an experienced broker for this, and even then you may find no takers given the details and the current climate on lending.

Aside from that, and as others have stated, including your own home to repay a business debt may not be the wisest of moves ... have you spoken to your accountant about this, if not I would strongly encourage this.

H x

lea

Thanks everyone.
The house has a charge against it by the bank for the overdraft.
Our accountant has suggested one of the options is to get the mortgage as he agrees that the loan that the bank are offering could put the business under too much pressure. The forecasts for the business are good and now the initial money has been spent on parts and manufacturing etc this large outlay will not be repeated. The last year or so has also been about brand building and the business has now spread to the USA, Australia and Europe but it's quite a niche market. Things are looking really positive but our concerns are that a business loan will be too much for the business to handle at this moment in time, whereas I have an independent job away from this business and could afford the mortgage repayments if it came to it.
Any further advice/comments greatly received,
Thanks
Lea

getmore4less

If the house is already securing the loan/OD then is there any increased risk by taking a residential mortgage, probably not as long as the charge is removed.

The business just owes you the money rather than the bank.

Can probably still get relief on the interest.

How far into the OD have you been going, cash flow is the biggest killer of business.

How cash generative is the business.

It may be time to review the growth and make it from revenue generation not more debt.