How to Build Your Business with Equity Release?

Finding proper funding is one of the biggest challenges most startups face. Many entrepreneurs take the conventional road and choose traditional methods of funding. At the same time, others expand their business with equity release. The funding option has become extremely popular amongst small and medium-sized enterprises. Here, we will discuss what equity release is and how to fund your business.  

What is Equity Release? 

Equity release is a kind of business loan secured against an individual’s house and an easy way to unlock the real value of your property. Homeowners aged 55 and above can get the value of their homes. The amount released depends on your age and the home's worth. Furthermore, you will have two options to release equity and get money. You can either claim it as a lump sum or get it in a series of smaller lump sums. 

There are two types of equity releases: 

• Lifetime Mortgage: This type of loan is provided on the property, which is your primary residence. You retain ownership and can make the repayments later. 
• Home Reversion: The second category of equity release is when you sell part of your home in exchange for a lump sum amount or regular payments. 

Is Equity Release a Good Idea? 

Before we discuss how to fund your business with equity release, let us understand whether it is a good idea. One of the key benefits of equity releases is that they may provide you with an instant source of money in hand. If the value of your home has increased, you can certainly use the money to cover your costs or fund your business. Many professionals often argue and claim that releasing equity is one of the best ways to fund your business. Let us compare the advantages and disadvantages of equity releases to understand the context better.  

Pros of Equity Release 

• You will have tax-free cash to spend and can use the money to make improvements to your home or business. You may also use the money to pay off debts or help any family member. 
• In the case of lifetime mortgages, there will be no debt transferred to your family members. 
• In-home reversion plan, the portion of your home will be sold off. In a lifetime mortgage, you still own your home and get a good value on the same. 
• It can also help reduce Inheritance Tax liability. 

Cons of Equity Release 

Before funding your business with equity release, you must be aware of specific cons and risks.  

• You should be aware that you cannot avail yourself of any other loan for your home or business if you use equity release. 
• There are charges associated with lifetime mortgages that you may have to pay along with the repayment money. 
• There are chances that the debt might increase due to the interest money. 

Read Also: Six Ways to Help Women-Owned Businesses

Funding Business with Equity Release 

The conventional methods may have huge interest areas or repayment issues. Equity release is an easy option that may help you fund your business without many financial risks. You will less likely to get into any debt with this financial arrangement. Here are three reasons you should use business equity releases for your entity. 

Keep Control of Your Business 

Keeping overall control is one of the major concerns that most businesses often face. When a private equity firm buys a minority position, the existing owners may still control the business's operations. They are likely to be responsible for strategic choices and bank borrowing-related decisions.  

Business Succession  

Equity release is an excellent option for business professionals approaching their retirement stage. It may give them excellent monetary benefits and incentives to fund the business. It can be highly beneficial if the business is family owned and can be easily transferred to the next generation. This way, you can still have equity in your home and protect your business. 

Reducing Risk Exposure 

Individuals who want to reduce the risk exposure can seek an equity release option. While many individuals postpone their retirement plans, some may sell their businesses after retirement. Equity release is a type of loan that may help cover the company and provide you with an adequate amount of cash. Moreover, you will not have to make any repayments or enter any long-term care. There are multiple options, and you can pay the full line early.  

It can be highly beneficial for funding and may allow you to expand the business. In contrast, equity releases can lead to certain risks and limit your ability to seek other loans. The early exit fees may also be applicable on loans. You should read a detailed account of the equity releases before making the decision.