Homeowner business loans: why owning your home widens your options

The phrase is used in two different ways, which causes a lot of confusion:

• Unsecured, homeowner criteria. The loan is to the business and is unsecured, but at least one director or guarantor must own a property. The home is not charged; the lender relies on the business and on a personal guarantee from a homeowner. This is the most common meaning.
• Secured on the home. Some lenders use "homeowner loan" for borrowing secured by a legal charge on the owner's house, often a second charge business loan behind the existing mortgage.

The two carry very different levels of personal risk, so the first question to ask any lender or broker is whether a charge will be registered against the property.

For most unsecured business loans to smaller companies, lenders ask directors for a personal guarantee. A guarantee is only as good as the person behind it. A director who owns a home with equity in it has assets that could, in the worst case, be used to meet the guarantee. A tenant with no property may still be good for the money, but the lender has less to fall back on.

That is why homeowner status often affects:

• How much you can borrow. Several lenders set a higher maximum for homeowners.
• Term. Longer terms are more often available with a homeowner guarantor.
• Appetite for weaker cases. Younger businesses or patchy credit may be considered with a homeowner guarantee where they would otherwise be declined.
• Price. A stronger guarantee can mean a better offer, although pricing always depends on the whole case.

Our guide to personal guarantees explains how guarantees work and what you are signing up to.

• Limited company directors and LLP members who own their home, with or without a mortgage.
• Businesses needing more than they could get on trading performance alone.
• Owners who want funding quickly without valuations and legal work on property.

The lender assesses the business in the usual way: bank statements, accounts, turnover and existing debt. It then confirms that a director or guarantor owns property, normally by checking the Land Registry title or a mortgage statement. The guarantee is signed alongside the loan agreement. No valuation or charge is needed for a true unsecured homeowner loan.

Illustrative example only, not a quote

Two companies with similar turnover and two years of trading each apply for £80,000. In the first, both directors rent. In the second, one director owns a house with a mortgage. A lender might offer the first company a smaller amount over a shorter term, while offering the second the full £80,000 over a longer term, backed by the homeowner director's guarantee. Neither loan is secured on a house.

A charge over property tends to come into play when:

• The amount is beyond what the lender will provide unsecured.
• Credit history or trading is too weak for an unsecured decision.
• The borrower wants a longer term or lower cost that only secured lending offers.
• A guarantee has been called and not paid, in which case the lender may go to court to recover the debt, which can lead to a charge being registered against property you own.

At that point the product is really a secured business loan, and it should be compared as one.

If a loan is offered under the Growth Guarantee Scheme, the British Business Bank's scheme FAQs state that lenders may take personal guarantees where that is their normal practice, but cannot take your principal private residence as security. Our Growth Guarantee Scheme guide explains eligibility.

Compare the total amount repayable, arrangement fees, any early repayment terms and whether the guarantee is capped. A cheaper offer with an unlimited, all monies guarantee may carry more personal risk than a slightly dearer one with a capped guarantee. Personal guarantee insurance can cover part of a called guarantee, subject to its terms.

Renting does not rule you out. Our page on business loans for non-homeowners covers the products that do not depend on property ownership.