Using Home Equity Release to Set Up as a Sole Trader – What You Need to Know

Plenty of people dream of working for themselves but hold back because they also like the steady income their job provides. However, once the children are grown and the mortgage is paid off an excellent opportunity to take the plunge comes into view – one which involves releasing equity in their home to fund a small business venture.

How Equity Release Works
The basic condition required to qualify for equity release is that the youngest person to be named on the paperwork is at least 55 years old. The most common form is a lifetime mortgage, which can be taken as either a lump sum or in stages, as and when it is needed.

Borrowers can choose to either make regular (or ad-hoc) repayments or defer the entire loan to be paid in full along with the interest charged, until they either go into long term care or die. All named people on the agreement have the right to remain living in the property until that point – in fact they remain the official owners. Any profit left after the property is sold and the debt repaid goes back to the estate and named beneficiaries.

How Much Can You Borrow?
The younger you are the lower the percentage of your property’s value will be available to borrow, and 60% is usually the highest possible ratio loaned.

Using Equity Release to Become a Sole Trader – Is It a Good Idea?
There are few rules about what you can do with the cash released, and although the most popular choices are to buy a new car, refurbish the property, or travel the world a good number of people do choose to start a business. This is especially the case for those who see early retirement as a good way to expand an existing hobby business into something official.

Having access to cash to pay for premises, equipment, materials or stock, and for essentials such as advertising are definitely a great boost for any new business, and there’s plenty of great advice available online for new starters looking for advice on setting up as a sole trader.

Hard Questions
Like any major financial decision it’s wise to approach this opportunity with caution, and do plenty of research or seek independent advice before committing. Things to consider include:

*What provision is in place for your financial future if the business should fail? (Not something anyone wants
to happen, but it has to be considered.)

*Is it possible to earmark only a percentage of the equity released for the business investment, then reassess
things down the line?

*Do you have other income sources if the business doesn’t make much profit at the start?

*Could you work from a garden shed or your spare bedroom and keep costs down?

There are lots of great reasons to use equity released from your home to fund a new adventure as a sole trader, so long as you have approached the topic with care and taken sound financial advice. For help in finding the best equity release rates for your situation, head over to Responsible Equity Release.