Using property equity to fund business growth

For many businesses, commercial or even residential property represents one of the most valuable assets on the balance sheet, yet it’s often left untapped. Property-backed lending allows businesses to unlock the equity built up in a property and put it to work funding growth, whether that’s expanding into new premises, investing in equipment, or simply strengthening working capital.

What is property-backed lending?

Property-backed lending is finance secured against a property a business owns, either commercial premises or, in some cases, a director’s residential property. Because the lender has the security of a tangible asset, this type of finance can often be arranged at more competitive rates and higher amounts than unsecured borrowing, making it an attractive option for businesses looking to raise significant capital. 

Common ways businesses release property equity

• Commercial mortgage refinancing – as a property increases in value or a mortgage is paid down, the equity within it grows. Refinancing the existing mortgage allows a business to release some of that equity as a lump sum, without needing to sell the property.
• Second charge loans – rather than replacing an existing mortgage, a second charge loan sits alongside it, secured against the same property. This can be a faster route to raising capital, particularly if the existing mortgage has favourable terms that a business doesn’t want to disturb.
• Bridging finance – where funds are needed quickly, for example to secure a new property purchase or take advantage of a time-sensitive opportunity, bridging finance secured against property equity can provide short-term funding until longer-term finance or a sale is arranged. 

What businesses use the funds for

The capital released through property-backed lending is flexible and can be directed wherever the business needs it most. We’ve supported businesses using property equity to purchase additional premises, reinvest into the business, debt consolation, partially used to fund a management buyout (in conjunction with another cash flow loan) or simply provide a working capital buffer during a period of growth. One example is a distribution business in Gloucestershire that released equity from its warehouse to fund the fit-out of a second site, allowing it to expand into a new region without taking on a separate high-cost loan.

Case study: £6 million equity release for a West London family office

We recently supported a family business based in West London that wanted to expand its property portfolio by acquiring further freehold assets. Rather than raising fresh capital from scratch it released equity from its existing business office, unlocking £6 million to reinvest into additional freeholds.

This approach allowed the business to grow its portfolio using value already tied up in assets it held, rather than disturbing existing arrangements or bringing in outside investment. The released capital was redeployed quickly, giving flexibility to move on further freehold opportunities as they arose.

Things to consider before releasing equity

Because this type of finance is secured against property, it’s important to be confident in the business’s ability to meet repayments, as the property is at risk if repayments aren’t maintained. It’s also worth considering how much equity to release. Borrowing too conservatively may mean returning to the market again soon, while over-borrowing can put unnecessary pressure on cash flow. A lender will also assess the property’s current value and the business’s financial position, so having up-to-date accounts and a clear plan for the funds helps the process move smoothly.

Finding the right structure

With several ways to release property equity, each with its own costs, terms and speed of access, it’s worth having a broker compare the options against your specific goals. We work with a wide panel of lenders to find the structure that best fits how your business wants to use the funds.

If you’d like to explore how property equity could help fund your business’s growth, please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.