How to finance a holiday let business

Holiday let businesses are an excellent way to earn extra money, whether you're looking to supplement your salary or start a new business. However, they can also be quite expensive to set up and run. So, how do you finance a holiday let business? This guide will give you options for getting the money you need to start your business.
How to finance a holiday let business

1. Buy to Let (BTL)

A BTL mortgage is a loan provided to individuals to buy a residential property for tenants. BTL mortgages are available from banks and building societies, with lending criteria varying according to their requirements.

It's essential to understand the difference between this type of mortgage and a typical residential mortgage, so if you're looking at buying a house you live in yourself, there will be a different process. In some cases, there are restrictions on who can borrow money from their lender, so it's worth checking before applying for either type of loan. Besides, you may need significant savings or equity built into your existing home before being eligible for a BTL mortgage. Likewise, you must have good credit history and income sources, such as employment contracts or rental income from other properties owned by yourself or others within your household.

With a BTL mortgage, the buyer can purchase their property outright or share ownership with another party. Buying a property in this way means that buyers are not required to commit to long-term contracts, such as leases, which makes buying properties far more affordable for those who wish to invest in residential real estate without being tied down. You may check out a detailed breakdown of how a BTL mortgage works in this helpful guide.

2. Bank Overdraft

If you're looking for a way to finance your holiday let business, applying for an overdraft may be a good option. If your bank approves you as suitable for a savings account and you have enough surplus cash in your account, then they might be willing to give you an overdraft facility on top of the savings account. This is essentially borrowing from the bank, although it is technically not debt because there are no interest charges. It only means the bank has lent that money at no cost (or minimal cost) to yourself.

The amount of money banks will let you borrow will depend on their policies and regulations and their assessment of whether they think they can get their money back when needed. The maximum amount available through an overdraft varies between individuals and banks, so you must ask what options are available when choosing which one suits you best before signing anything off.
Choosing the best finance option for a holiday let business

3. Property Refurbishment Loans

You can use property refurbishment loans to finance the refurbishment of existing properties, purchasing leasehold properties, new build properties, and mixed-use properties.

A property refurbishment loan is a great way to finance your holiday let business as it allows you to borrow more than your bank would give you by offering a higher loan-to-value ratio (LTV). For example, if you have a GBP £100,000 holiday home with an LTV of 75%, some providers will lend up to 95% or even 100% LTV if you want or need to borrow more money for refurbishments.

4. Personal Loans

Personal loans are always a go-to option for holiday let business owners looking to fund their dream. They're unsecured loans, so you don't need any collateral. Most banks and building societies offer personal loans, so it's easy to apply online with your available details.

You can use personal loans for several purposes, including paying off credit card debt or buying furniture or equipment for your holiday let business. You can also use your loan as working capital if you want to invest in new property or equipment but don't have the cash available immediately. They are quick and convenient, processed quickly after application, and can be approved within a few days of your application if you meet all requirements (such as income).

Yet while you're here, it might be critical to note that while you may use it to finance your holiday let business, it's not the best decision among your pool of options. This is because personal loans typically have shorter payment time frames that can put a lot of pressure on you and potentially hurt your credit history. Hence, ensure you first get professional advice before you take out this loan to help finance your holiday let business.

5. Bridging Loans

Another popular option is to arrange a bridging loan through an independent lender, which covers the period between a property purchase and when a mortgage is arranged in full.

The main benefit of using an independent lender for bridging loans is their ability to make decisions quickly, so transactions don't stall or fall through due to a lack of available finance at short notice.

High street banks traditionally provided this type of finance. However, the advent of new lenders entering the market has provided more available options for borrowers looking for quick access to funds.

6. Conclusion

The takeaway from this post is that you have plenty of options in your hands to finance your holiday let business. Thus, it's crucial to understand which type of loan is best for you. Ultimately, go for the one that can help grow your business without putting a strain on your finances.

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