We’re proud to support property investors progressing via a share purchase agreement (SPA) – given that their complexities could limit options on the high street. Businesses, and the partners within them, can set up SPAs to save on tax and admin, but where unexpected shifts in circumstance arise, it can lead to ugly roadblocks.
Business partners sometimes need to move on, but this is often easier said than done. If delays emerge, there can be unnecessary conflict. Say two partners – James and John – co-own a limited company that owns a portfolio of BTL properties worth £2.5m. James, via the underlying SPA, owns 60% of the shares of this company, and John owns 40%.
John, for any number of reasons, wants to exit the business and sell his shares to James for £600,000. The issue is that James does not have enough liquid capital to purchase the shares. This is especially problematic as James wants to wrap this up quickly so he can retain full control of the portfolio in order to refinance later with better terms.
High-street banks are unlikely to lend the funds needed to facilitate the purchase of company shares. An alternative will need to be found quickly to prevent John from selling to an external party. Also, James may not want to sell any assets to generate the £600,000 needed, meaning a short-term solution needs to be found.
A bridging loan could offer just the right solution for this. We could (so long as the wider circumstances worked with our criteria) secure a £600,000 bridging loan against the equity built up in the property portfolio.
James could then use the loan to buy John’s shares, and acquire the company in its entirety. In terms of the exit strategy, James could explore external options. The refinancing could take shape as either a BTL or commercial mortgage.
All this would allow for a clean shareholder exit, the avoidance of selling any actual properties to cover the payment, and leeway in securing long-term refinance.
