Can You Raise Money from Your Rental Property for Business Purposes?

If you own a rental property with sufficient equity, you may be able to borrow against it to raise money for your business.

Depending on your circumstances, this could be arranged through a second charge loan, refinancing or unregulated bridging finance. The right option will depend on how much you need, how quickly you need it and how you intend to repay the loan.

Raising business funds from a rental property at a glance

• You may be able to borrow against a mortgaged or mortgage-free rental property
• You may not need to sell the property or replace its existing mortgage
• First and second charge options may be available
• The amount you can borrow will depend partly on the property’s value and existing borrowing
• Personal and limited company applications may be considered
• The lender will need to understand how the business funds will be used
• All secured borrowing places the property at risk if repayments aren’t maintained

How can you raise money against a rental property?

Equity is the difference between the current value of your rental property and any borrowing already secured against it.

For example, if your rental property is worth £250,000 and the outstanding mortgage is £140,000, it has £110,000 of gross equity.

This doesn’t necessarily mean you can borrow the full £110,000. A lender will consider the property’s value, existing mortgage, proposed loan amount and the maximum loan-to-value available.

There are three main ways you may be able to release some of the equity.

What business purposes could the money be used for?

Subject to the lender’s criteria, money raised against a rental property could potentially be used for:

• Purchasing business equipment or vehicles
• Buying stock or materials
• Expanding or improving business premises
• Supporting short-term cash flow
• Funding recruitment, marketing or operational growth
• Consolidating eligible business debts
• Investing in another property
• Funding property refurbishment
• Providing a deposit for a new investment
• Supporting an existing family business

The lender will normally ask for a clear explanation of how the funds will be used. Evidence of the business purpose may also be required.

How much can you borrow against a rental property?

The amount you may be able to raise will depend on several factors, including:

• The property’s current market value
• The outstanding balance of any existing mortgage
• The lender’s maximum loan-to-value
• The property’s rental income
• The amount required
• The intended use of the money
• Your credit history
• The proposed loan term
• How the borrowing will be repaid

A property valuation will usually be required to confirm its current value and suitability as security.

Can you raise business funds if you have adverse credit?

Having adverse credit doesn’t necessarily prevent you from borrowing against a rental property.

A specialist lender may consider applications involving missed payments, defaults or County Court Judgments. Rather than relying entirely on an automated credit score, the lender may assess the circumstances behind the credit issues and the overall strength of the application.

However, the type, value and timing of any adverse credit may affect the lender’s decision and the terms available.

Read our guide to bridging loans and buy-to-let mortgages with adverse credit for more information.

Can a limited company borrow against a rental property?

Limited company borrowing may be considered, particularly where the property or business is already held within a company structure.

The lender will need to understand:

• Who owns the property
• Which individual or company is applying
• How the funds will be used
• Whether personal guarantees are required
• How the loan will be repaid

The most appropriate structure will depend on the property ownership, the borrowing entity and the purpose of the loan.

How can Mercantile Trust help you raise business funds against a rental property?

Mercantile Trust can consider first or second charge borrowing secured against an existing rental property. This means you may be able to release equity for a legitimate business purpose without selling the property.

If the rental property already has a mortgage, a second charge loan could allow the existing mortgage to remain in place. If the property is mortgage-free, a first charge loan may be considered.

We offer two possible options.

Longer-term secured loan

A non-regulated term loan may be suitable when you want to spread repayments over a longer period.

Mercantile Trust can consider:

• Loans from £10,000 to £500,000
• First and second charge borrowing
• Up to 75% loan-to-value
• Terms from 36 to 360 months
• Fixed and variable rate options
• Unlimited overpayments without penalty

Short-term bridging loan

An unregulated bridging loan may be more appropriate when the business funds are needed quickly and there is a clear plan for repaying the loan.

Mercantile Trust can consider:

• Loans from £25,000 to £500,000
• First and second charge borrowing
• Up to 75% loan-to-value
• Terms from 1 to 18 months
• Serviced or rolled-up interest
• Cross-charging across eligible rental properties

Both personal and limited company applications can be considered, including applications involving adverse credit.

We can accept standard buy-to-let properties, HMOs, Multi-Unit Freehold Blocks, student lets and holiday lets as security, subject to our full lending criteria.

The maximum net loan available in Northern Ireland is £150,000. Every application is manually assessed and remains subject to valuation, affordability, underwriting and evidence of how the business funds will be used.

What should you consider before borrowing?

Releasing equity can provide useful business capital, but it also creates additional borrowing secured against your rental property.

Before proceeding, consider:

• The monthly payments or total repayment required
• Interest, arrangement fees, valuation costs and legal fees
• Any early repayment charges on the existing mortgage
• Whether short-term or longer-term finance is more suitable
• How the business will afford the borrowing
• What will happen if the intended repayment strategy is delayed
• Whether unsecured business finance may be more appropriate

Looking to raise business funds from a rental property?

Mercantile Trust can consider secured business funding involving rental properties, first and second charges, limited companies and applicants with adverse credit.

Every application is manually assessed, allowing us to consider the property, the purpose of the loan and your wider circumstances.

Tell us how much you want to raise, what the money will be used for and which property you intend to use as security. Our team can explain the options that may be available.

The regulatory status of a loan depends on the individual circumstances of the application. This article is for general information and does not constitute financial or legal advice.

Our loan products are not regulated by the Financial Conduct Authority.

Subject to status and lending criteria

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

Reviewed by: Tara Evans, Chief Executive