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Borrowing through a newly set up limited company

Jeni Browne, head of residential and buy to let lending at Mortgages for Business answers one of the questions we are asked regularly at the moment – Can I borrow through a newly set up limited company?

We are frequently asked at the moment (and it’s a very fair question), Can I borrow through a new company? and how is this possible as the company does not have any trading history, so how do the lenders get comfortable with this?

When borrowing through a Ltd Co, lenders will always ask that the Directors and/or shareholders offer an unsupported personal guarantee (more info on this below). What this means is that these people are ultimately liable for the mortgage in the event of a repossession and thus the lenders are underwriting these people rather than the company. Therefore, as when taking a mortgage in your personal name, they will credit score those offering the personal guarantee, and these people will also need to meet the relevant criteria. This is how lenders get comfortable with the company being brand new and not having any track record.

This then raises the question of whether, when the company does have a track record, a personal guarantee will still be required? This is a yes for pretty much every lender. There are some commercial lenders who may do a mortgage without a personal guarantee, but these are generally on loan to values at sub 50% and on commercial terms.

So, what is personal guarantee?

As stated previously, when taking out a limited company buy to let mortgage, lenders will nearly always want the Directors and/or shareholders to offer an unsupported personal guarantee. This does not mean they are taking a charge on your home or other assets. What it does mean is that if the property were repossessed and sold on, and the money raised did not clear the mortgage and thus the lender were out of pocket, if the company does not have the means to make up the shortfall to the lender, then those who gave the personal guarantee are then liable for this. This is the same when you take a mortgage out in your personal name.

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