Loan v remortgage v trading in an asset to fund a new business start up

Bellaeve

I need abit of advice. I have the opportunity to set up a new business that would make great use it my land while also bringing in a healthy return. I need advice on the best option to get funds to start this business. I don’t have savings but I do have another house I currently rent out. I also have £200k equity in my current home. If u remortgage my current house to get equity I will be paying a lot of interest over the term to do this. I worked out if I wanted to take out £100k over 25yrs this would be £420k at about 5%! If I sell my rented house to get the £100k I worked it out to only take 2 years to break even on my current business plan if it goes to plan.   To break even on the remortgage would take like 8 years!! Is an outright loan a better option! I’m not sure what option is best. Is trading in one asset for another with higher potential a worth while risk? If anyone has any advice it would be much appreciated. 

Many thanks 

DullGreyGuy

It's naturally a risk as you say "if it goes to plan"... it may not go to plan for various reasons. 

You say it's using land you already own for something... presumably this will require planning permission (change of use)? Have you at least spoken to the council to see if it's likely you'll get approval else it may be a lot of planning etc only to fall at the first hurdle. 

born_again

For a loan you will need a business plan. As above. Have you checked that you can do what you want with the land?

Hoenir

Business plan is key. Model what if scenario's. As rarely do things go smoothly. 

Bellaeve

DullGreyGuy said:

It's naturally a risk as you say "if it goes to plan"... it may not go to plan for various reasons. 

You say it's using land you already own for something... presumably this will require planning permission (change of use)? Have you at least spoken to the council to see if it's likely you'll get approval else it may be a lot of planning etc only to fall at the first hurdle. 

Thank you for response. Yes we have pre approval for the project so all is good on that front. 

It’s more understanding will it cost me more to use a loan? Or is that the sensible thing to do to build my asset column?

enthusiasticsaver

Too many variables to say which is the best option but I would never remortgage my house to start up a new business. Any new business is a risk and risking the roof over my head even were the bank to agree to remortgage for a new start up would be my least best option. 

As to which is cheaper as you have the figures and presumably a business plan only you can say.  If you sell the rented property you will obviously lose the rent you receive currently, if you borrow on a business loan then it depends what interest rate they offer you as to how expensive it will be and how quickly you can repay it. 

MEM62

born_again said:

For a loan you will need a business plan. As above. 

For most startup loans you will also have to put in 50% of the investment.