Equity release is a way to unlock the value of one’s property, thus turning into a cash lump sum. It is a means of retaining the use of properties which have cash value while at the same time obtaining a lump sum or steady stream of income through the property’s value.
How Does Equity Release Work?
There are several ways to release equity from your property, while one might choose to sell and downsize, equity release is a much viable option for others. This equity refers to the property market value asides loans and debts you have taken against it. This value is then taken out often by remortgaging the property out, and tax-free payments are received on it
10 Ways Businesses Can Benefit From Releasing Equity
Often, running a business can be tasking, mainly because it requires continuous inflow of cash for it to adequately and effectively manage its operations. As a result, to finance its operations, the business might begin seeking alternative options, such as equity release. Here are 10 ways businesses can benefit from equity release:
- Debt Release
As a business owner, you might take out a commercial mortgage loan. This commercial mortgage loan is a mortgage loan secured by commercial property, in this case, your business real estate assets, including office buildings, industrial warehouses. Equity release, therefore, helps your business clear existing mortgage loans.
By remortgaging your business’ properties, you can take out some of the equity from your current property to fund new developments that would bring in more funds for the business. Or, you can choose to save up the funds. With this access to more funds, your business can pay off its commercial mortgage quicker.
- Funding Property Improvements
For businesses looking to renovate their properties, equity release is one direction that should be considered. Property renovations can be expensive and can take a toll on a business’ income, as such, an alternative source of income to cater for this would no doubt be appreciated.
Hence, remortgaging business properties bring in this alternative source of income, making it a lot easier for businesses to fund these renovation projects. Not to forget, these renovation projects also increase the value of the business’ assets allowing it to be sold faster and at a much higher price.
- Boosts Disposable Income
As a self-employed business owner, releasing your business assets equity would give you protection for whatever turn life takes. As one of your concerns would be guaranteeing your sustenance in the long run, releasing equity is a viable option.
This is even more important, especially when you might not have guaranteed investments or enough private pension to boost your state pension. This tax-free income would give you some breathing space to save more and also provide a long-term top-up to retirement or care costs.
- Funding Large Purchases
Equity release also provides businesses with funds that would cater for any significant expenses of the business. For instance, a business can choose to release its equity to fund the purchase of machinery it needs. These equity release plans can also provide funding for staff bonuses, which would ordinarily constitute as large expenses for the business.
This way, the company can afford to purchase new machinery and provide staff incentive to its workers, encouraging them to do more at virtually no cost to the business.
- Tax-Free Income
By choosing to release its equity, a business is provided with tax-free income. This implies that said business gets to fully enjoy the income received from equity release without having to bother about tax deductions. As such, businesses can enjoy the total amounts receivable, and they are provided with more income to use. These proceeds are therefore more enjoyable by the business.
- No Monthly Payments
Unlike other forms of mortgage and home revision finance, there are no monthly payments which are necessitated in equity release. That means, the business is not required to make monthly payments on to the amount on the interest charged. The lenders do not require regularized payments.
However, the business is free to decide on what payment option works best for it. That is, it can schedule payments based on income received. This leaves the business in charge of its payment option, giving it the option to make payments when it has substantial income. The business can also decide to make payments either as a lump sum or a lump sum with a drawdown facility.
- No-Negative Equity Guarantee
Equity release allows for no-negative equity guarantee, which means that at resale, you do not have to repay more than the value of your business assets and these assets cannot owe more than it is worth when sold. That is, if eventually, the business decides to sell its property, it does not have to repay the balance owed more than the property’s value; also the amount owed cannot exceed the amount the property is being sold for.
- Portable Mortgage
Mortgages under equity release are portable. That is, the business can choose to move from one property to another while still enjoying the same benefits. However, this movement is subject to the business meeting the provider’s criteria. If the property to be moved to is of less value than the actual property, then a partial repayment may be required.
- Fixed Interest Rate
The interest rates under equity release are fixed for life. That is the same price is expected to be paid as interest, for the period the plan lasts for. This means that regardless of how long the plan lasts for and the increase in the property’ value, the interest rates remain the same which differentiates equity release from other forms of property finance.
- Continued Ownership
Using equity release as a property finance option allows businesses to retain ownership of their properties. Ownership is not transferred to the leasing party, and the business can also decide to continue functioning from that location as its rights and claims towards that property remain unaffected.
Equity release allows businesses to remortgage their assets while still retaining ownership of these properties. This then provides the business with large cash flow, which is tax-free and can be used in running the business’ operations.