TL;DR: No, you don’t. But it depends where you apply.
“Are you a homeowner?” You’re likely to come across this question while you’re on the search for business funding. But is it a pre-requisite? Or can you get a loan without homeowner ship?
The simple answer is that no, you don’t have to be a homeowner to get a business loan. Although it is a requirement for some lenders.
Why do lenders ask?
Traditional banks tend to require homeownership before they’ll approve your loan application. But there are many alternative lenders (including us) who don’t even ask the question.
Lenders ask if you’re a homeowner because they want to “secure” your loan against your home. This means that if you’re unable to pay your loan back, the lender can simply take your house to make up for the money they’ve lost.
To a certain extent, homeownership can also give lenders added reassurance that you’re relatively good with money on a personal level. The chances are, if you own your own home, you’re good at managing your own finances.
Sometimes, a lender might also ask about any assets owned by your business. For example, this could include your business premises (if your business owns it) or expensive machinery or equipment.
What about your loans?
The business loans we provide are unsecured, which means we won’t ask for any assets or collateral to approve your loan. This includes assets owned by your or your business.
With homeownership becoming increasingly rare amongst younger business owners, this is good news. It’s also good news for business which tend not to own expensive assets – for example, a restaurant which leases its premises and most of its kitchen equipment.
Even if you do own your own home, you might be uncomfortable about risking the place you live in order to get finance. In this circumstance, an unsecured loan may be your preferred option.
What counts instead?
Without the option of putting a charge on your home, most lenders will still need some reassurance that they’re going to get their money back.
Some lenders, including Boost Capital, ask for a personal guarantee. A personal guarantee is effectively a promise that you’ll pay the loan back personally if your business can’t keep up with the repayments.
It gives the lender extra reassurance that you’re serious about paying the loan back.
If you’re worried about the possible effect of signing a personal guarantee, you can buy insurance which covers you in the event a lender asks you to pay a business loan from your personal finances.
As well as asking for a personal guarantee, most lenders will also look at your personal and business credit histories. This gives them an indication of how creditworthy you are.
However, don’t worry if your credit history is less than perfect – some lenders, including us, don’t need you to have excellent credit.
When we assess an application, we base our decision on the overall health of the business and not just the credit report. As long as your business is turning over and has a positive cash flow, you’re likely to be approved.