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Even fifteen years ago, a "high-risk industry" used to encompass a small number of relatively predictable activities such as gambling, tobacco or defence. These high-risk industries were relatively niche in scope, and as a result, the players in the space tended to be large – multinationals and household name businesses.
Today, the business landscape is different. "High-risk" companies are considerably more common, the players are smaller, very profitable and their products or services are far more mainstream. New technologies, scientific advances and changing legislation has driven incredible innovation over the past few years, changing the shape of whole industries and even creating entirely new ones. A new generation of hugely successful entrepreneurs has grown up around these new industries and businesses.
A high-risk industry can range from the mainstream but relatively new (crypto and blockchain, cybersecurity) all the way into cutting edge territory, such as pioneering biotech. Other businesses are considered high-risk simply because they fall into the middle ground between old and new. These are often related to an industry that has been around for some time but with an added twist that catapults them into novel or high-risk ground: drugs for medicinal use, certain types of AI, apps, gaming and gambling, algorithms and revolutionary tech, for example.
While those in these fields often have incredibly successful business ventures (many are propelled into UHNWI territory), and despite being one of a growing number of entrepreneurs operating in high-risk industries, it is sometimes very difficult for these individuals to raise any kind of finance. The issue isn't confined to the business but can spill over into a founder's personal life to the extent that they cannot secure a mortgage for a primary residence.
The problem isn't overambitious plans for borrowing or that their wealth doesn't support a loan. Instead, even the association with a high-risk industry is enough to make getting a mortgage very challenging for an entrepreneur. Client onboarding and compliance are often the roots of the issue, but not for the usual reasons. These are usually top-quality borrowers that are well-advised; they optimise tax but only via highly legitimate structures and jurisdictions, and they have well-documented sources of wealth.
As always, risk is a central focus for lenders, and in cases such as these, it will be centred squarely on the entrepreneur. If the bank deems the borrower is too high risk because of their association with a business they have founded, co-founded or invested in, many will not be able to lend. Add in any kind of offshore or international element, and things will get even more complicated when it comes to a mortgage. For example, British expats working in Switzerland's Crypto Valley or entrepreneurs in Singapore looking for a UK mortgage will find it challenging to borrow without a broker. Equally, a French entrepreneur who founded a gaming business in the UK (where they are a resident) may find it hard to get a mortgage, regardless of their net worth or the business' success. The further an entrepreneur goes from a plain vanilla scenario in terms of business interests, investments, nationality and country of residence, the harder it will likely be to secure even the most straightforward of mortgages.
An entrepreneur doesn't even have to be directly involved in a high-risk industry to find themselves unable to get a mortgage. If they have built proprietary infrastructure, tech or systems for the tobacco industry, they could find borrowing is impossible, even if they have never worked with, marketed or sold tobacco products, for example. The same will hold true with even trivial or distant associations with gambling, gaming, crypto, blockchain, proprietary algorithms, pioneering tech, biotech, defence and so on.
When securing a mortgage becomes challenging, entrepreneurs are obliged to use to cash to buy property. They will often have to liquidate investments or dispose of assets to generate the necessary capital to do so. This is not always the preferred scenario or the most efficient way of purchasing a property from a fiscal, personal or planning perspective.
Enness works with UK residents, expats and foreign nationals based in the UK and abroad. We broker million-pound-plus mortgages in the UK and overseas for HNWI entrepreneurs who have generated their wealth from a high-risk business or industry.
To successfully broker a mortgage in these cases, the devil is in the detail. Banks tend to look at these entrepreneurs and their businesses as a single unit. The key to unlocking a mortgage or property finance is helping the lender understand and evaluate the risks and merits of the borrower separately from those of the business – making a fortune in a high-risk industry does not always translate to being a high-risk borrower.
To secure a mortgage, borrowers need to be able to access the lenders that can offer a mortgage through a broker like Enness. We know which lenders are comfortable with particular industries, those who are not and those who may just be able to get there if we can help unpack the situation with enough facts. Our collective knowledge and experience come from regularly and consistently doing this type of work for years and years. When we see an avenue that will deliver a great outcome for everyone in the deal, we will fact-find and take lenders a detailed plan of action to consider.
In many cases, this involves helping banks understand the entrepreneur's actual situation and risk. This is especially important if the bank won't lend based on an entrepreneur's involvement with a high-risk or speculative industry, but the borrower only has a relatively tenuous association with it. Lenders can't be persuaded or sweet-talked; this is about presenting hard facts and a compelling case backed by extensive supporting documentation that will give confidence. Lenders almost always benefit from a more comprehensive understanding of the situation to get a firmer grasp on actual (rather than perceived) risk, which can open the door to them considering a borrower they wouldn't otherwise.
Often, with some careful review, clarification and clear presentation of facts, there will be a viable case that makes a mortgage a possibility. Enness' conviction in both the quality of the borrower and that it is possible to lend will also open doors for those requiring finance.