Why Do Lenders Treat Share Purchases Differently from Property Purchases?

If you’re looking to purchase a business/company by buying it’s shares rather than just purchasing the property, you might be wondering if or why lenders treat these transactions differently.

The short answer? Share Purchases are more complex.

Let’s break it down…

Firstly, What is a Share Purchase?

A Share Purchase is when someone buys a company by purchasing it’s shares, rather than buying the company’s assets directly.

In property terms, this means instead of buying a building outright, you buy the company that already owns it. This can save on stamp duty and make the transaction quicker, as ownership of the property stays with the company – you’re just changing who owns the company itself.

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Why Are Share Purchases More Complex?

When you purchase shares in a company, you’re not just buying bricks & mortar, you’re buying the entire business. That means lenders need to look beyond the property and assess the company’s financial health. Their underwriters must have the experience to read, analyse, and understand the risk in the company’s accounts, including:

• Profit and loss statements
• Balance sheets

This ensures the business is financially stable and not a risk.

For a standard property mortgage, the underwriting process is simpler because the focus is mainly on the property itself.

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What About the Security Offered to the Lender?

Interestingly, the security offered to the lender is the same whether you’re purchasing a company’s shares or just the property.

This usually includes:

• A first legal charge on the property
• Personal guarantees or a debenture

So, from a security perspective for the lender, there’s no difference.

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Other Things You Need to Know about Share Purchases

• You’ll need independent tax advice from an accountant.
• Your solicitor will handle the Share Purchase Agreement (SPA), while the lender instructs their own solicitor for the mortgage (you may be liable for the legal fees).
• Property valuations work the same way as they do for a standard property purchase.
• Not all lenders have the expertise in Share Purchases, so your lending options may be limited – which is why using a specialist mortgage broker is recommended.

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Do Share Purchases Feel Different for the Borrower?

If you use a lender that specialises in share purchases, the process should feel very similar to a standard property mortgage. They will have the expertise to make things run smoothly.

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