Using a classic car as security for a vehicle restoration business
The benefits of staying active in later life are well known, and many more people are now looking at turning a hobby that they love into a business after retiring from their formal career.
Leaving the corporate environment and using their skills to be their own boss can be lucrative, as well as personally rewarding. But setting up a commercial business will still involve costs which need to be covered.
We were recently approached by an accountant whose client was an engineer - and who had taken early retirement from the petrochemical industry to set up a business restoring classic cars. Specialist skills are required to restore and maintain these vehicles, providing potentially lucrative business opportunities for those with the necessary abilities.
The accountant wanted us to find the most cost-effective way to raise funding to equip the fledgeling business.
He had a large and well-equipped workshop attached to his home. With some extra equipment, he could set up a business specialising in the serving and restoration of early Jaguar sports cars and saloons. He had already rebuilt a couple of examples, one of which he still owned.
"I advised my client against dipping into his pension pot, which would have some painful tax implications. I believed there would be better ways to raise the cash required."
He estimated that he would need around £20,000 to buy in a commercial compressor, a lift and specialist items such as a milling machine and an english wheel. He was confident that he could find all the items he needed on the secondhand market.
However, his accountant explained that as a start-up, lenders might not be keen to help. A start-up has no trading history, so lenders have no evidence that it will be successful, and that they will be repaid. Many mainstream business lenders refuse to lend to start-ups as a result.
The accountant suggested that Rangewell might be able to find a solution. We work with lenders across the entire market, and we know those who may have a more flexible approach to lending.
We looked at suitable funding solutions and saw that the answer was to provide a Secured Loan.
What is a ‘Secured’ Loan?
Like other types of lending, a Secured Business Loan provides a cash lump sum, which you agree to pay back with interest, usually in monthly instalments.
They are ‘secured’ because, to arrange them, the lender will require something as security. If you don’t repay, the lender will have the right to take the asset you have used as security.
Secured Loans mean more risk for you as a borrower but they are less risky for lenders, which is why they can provide a solution for new businesses which are unable to raise funds by other means.
Buildings and machine tools are often used, but it may also be possible to put your own home up as security.
You can only borrow an amount less than the value of the security you provide. So you can’t get a £200,000 loan with security worth £100,000. Loans are usually 50–70% of overall asset value.
The accountant advised his client against using his home as security - but he did suggest an alternative.
“By using his classic 1950 Jaguar as security, my client could raise the funds he needed for the equipment he wanted.”
It was an unusual choice of security, and most lenders were not able to consider it. But the car, a rare aluminium bodied roadster, was worth in the region of £450,000. We found a lender who recognised its value, and was prepared to advance the loan.
We secured the £20,000 he required at 20% over two years at 8%.
He was able to find all the equipment he needed, make a small deposit and take delivery. He was busy from the day he launched his business, and has taken on a mechanic and a bodywork specialist part-time.
“The business took off, I have a very happy client - and he tells me it doesn’t seem like work at all.”
Getting the finance you need can depend on being able to call on expert advice.
As an accountant, you may be ready to find out more about finance to solve your client's start-up or other funding issues. Our experts can work with you to find the most appropriate solutions and the most competitive rates for them.
Simply call us at Rangewell on 020 3637 4150 - or email [email protected] Our service is free.