Mortgage or loan - which is best for us?

James_Swift

We are looking to borrow about £40,000 for our business. We have good credit, no loans or mortgages and own our house.
We hope to be able to pay off the loan in full after about two years or so, or maybe even earlier - but this is not for sure.
Would it be cheaper for us to take out a cheap discounted mortgage or to go for an uninsured unsecured loan from e.g. Barclaycard at the 5.7% advertised on your site as being cheapest.
Thanks!

alpen_2

Try asking a business account manager at your bank for specific advice. The financing can be arranged elsewhwere if their terms are not competitive. Be aware they may try and charge a fee. It depends if it is an existing business or a start up.

Discounted mortgages will generally have early redemption penalties, so making early repayment expensive. Standard, variable rate loan would be better if you think you may be in a position to re-pay early. However, be aware of the tax position as early repayment will be from profits!

I was always advised that in business it is always risky to give banks personal gaurantees or secure a loan on your home. If the enterprise fails, you lose everything.
Borrowing for busines on a credit card would seem unwise, although it will not be a secured loan. As your home is loan free, it might be worth considering.

Rafter

Unlikely you could raise £40,000 unsecured to be honest without a combination of loans and credit cards and even then if you are self-employed that may well be tough.

Mortgaging your own home on your business is your own call, but as pointed out if the business fails it is your home at risk if you can't keep up payments.

If the business has been running for some time you might persuade a business bank to lend you the money secured on business assets.

Given the flexibility you want I'd go for an offset mortage from someone like the Woolwich or First Direct. That way you can only draw down what you need and repay it very flexibly.

Remember to make sure you charge your company interest though!

Good luck.

R.