Buying a business, using house equity.

Hoopertz

I have been offered an established business that has been successfully trading for over 4 years. The owner is retiring and hasn't really pushed the business for the last year, so a lot of scope to really build. I have savings due to redundancy, but wont be enough for the initial purchase cost and monthly living. The questions I have are... 1) Is it a good idea to fund the business this way? 2) I have been living off the redundancy and some retirement funds, so no proof of income, would this exclude any additional borrowing? eg additional mortgage
It's a great opportunity, it's turn key and the business is in a field I love.   

tacpot12

No, it's not a good idea to fund the business that way; you've not said whether you have run a business before, but it you haven't, the business is quite likely to fail and you could end up losing your house!

Additional borrowing is also likely to be difficult. I'm not sure I would even tell your lender than you have been made made redundant and are starting a business. You might find it harder to remortgage with  them. 

I would say you need to find another way to buy the business. First things, first though, have you had the business valued by a specialist? Most people overpay when they buy a business. 

Nasqueron

If you haven't told your lender you don't have a job and don't find one with enough income to cover it, you'll be stuck and potentially lose your home once your money runs out. This is completely aside from the risk of trying to take out more debt to fund a business that by your own admission, will need work and investment to make money from. Have you even seen the books and had an accountant look at them?

Brie

Hoopertz said:

I have been offered an established business that has been successfully trading for over 4 years. The owner is retiring and hasn't really pushed the business for the last year, so a lot of scope to really build. I have savings due to redundancy, but wont be enough for the initial purchase cost and monthly living. The questions I have are... 1) Is it a good idea to fund the business this way? 2) I have been living off the redundancy and some retirement funds, so no proof of income, would this exclude any additional borrowing? eg additional mortgage
It's a great opportunity, it's turn key and the business is in a field I love.   

Who says it's a great opportunity.  Have you had the financials assessed by an independent accountant?

It's turn key, so what are you buying?  Premises, staff and customer database?  What are the restrictions and guarantees with this?  Key staff members might leave, premises might need repairs or a renewed lease at an inflated price, how real is the customer database?

The business being in a field you love is the key point to me.  So it's something you know well and would enjoy, which is great.  And I assume this doesn't mean you are a brickie who loves the smell of flowers so wants to become a florist.

So that leaves using the house equity.   You say "additional" mortgage so you haven't paid the place off yet.  How close are you, how much more do you need?  If it's very close and very little then maybe if you have a truly great backup plan.  But you need to be entirely sure of what you are getting in to and what you can do if things go completely pear-shaped.  AND are you the only one on the mortgage and living in the house?  Big difference between doing this at 35 with a family including a few kids and being single and 55.