If you've built up equity in your home and you've got your eye on a business, you're actually in a pretty strong position. A lot of people don't realise that home equity can be a legitimate path into business ownership - and for the right situation, it works really well.
Here's how it works and what to think about:
Why Equity Makes a Great Starting Point
Most business purchases need a significant chunk of capital upfront. If you've been paying down your mortgage for a few years, that equity is sitting there doing not much. Using it to buy an income-generating business is a smart way to put it to work.
It's also often cheaper than a standalone business loan. Mortgage rates are typically lower than commercial lending rates, so borrowing against your property can be a more cost-effective way to fund the purchase.
What Banks Want to See
Banks are comfortable with equity releases for all sorts of purposes - but a business purchase does require a bit more information than, say, a renovation. They want to understand the business they're indirectly lending against.
That usually means two to three years of financial accounts for the business, so the bank can see it's been trading profitably. They'll want to understand whether the business generates enough income to comfortably service the debt alongside your existing commitments. If you're planning to work in the business full-time, they'll factor in your future income from it too.
The cleaner and more straightforward the business financials, the smoother this process tends to be.
There Are More Options Than You Think
One thing I find clients are often surprised by - there's more than one way to structure this.
Sometimes a straight equity release from the existing mortgage works well. Other times, a separate business loan or a combination of both is actually the better fit. It depends on the numbers, the lender, and what gives you the most flexibility.
Some lenders are much more set up for this type of deal than others. Part of what a good mortgage adviser does is find you the right lender for the right structure, rather than just walking into your existing bank and hoping for the best.
Get the Timing Right
Business purchases can move quickly once you're in negotiations. Getting your finance sorted early, ideally before you're deep into due diligence, gives you confidence and keeps the deal on track.
The main thing to do upfront is get the business financials from the vendor and pass them to your adviser. From there, we can work out pretty quickly what's possible and what the best structure looks like.
Ready to Explore It?
If you've got equity and you're thinking about buying a business, let's have a conversation. There are usually more options available than people expect, and it starts with understanding your full picture.
Book a call with Adam here to learn more: https://www.mymortgage.co.nz/call-with-adam/
