Employing Home Equity Loans in Small Business Financing
A Home Business Article Contributed by G. Uma Bennett
Employing Home Equity Loans in Small Business Financing
The quest for small business financing leads many entrepreneurs to look at their main asset-their home. If your home is worth $120, 000 consult your banker to find out the amount of equity available that you could borrow to use as funds to start and or operate your business. The advantage of a home equity loan or a Home Equity Line of Credit (HELOC) is that you can use a home equity loan for anything; your lender will not demand to see your business plan and in many cases the interest you pay is often tax deductible, to be sure of what percentage you can claim, check with a tax professional.
Protect Your Small Business Financing Home Base
The biggest risk in using your home equity as the basis of your small business financing is that if you default, the lender can foreclose on your home, because the home is collateral. A home equity loan is a lump sum you must pay back over a specific term and works like a credit card. If you get a $10, 000 line of credit but you only need $1, 000 for a laptop. You can access the $1, 000 through special issued checks or a credit card. Now have $9, 000 in available credit, but you still have to repay the $1, 000 within an agreed-upon amount of time.
Keep Watch on Your Small Business Financing Interest Rates
If your small business financing comes with an interest rate attached, in the case of a home equity loan be aware that interest rates can vary over the life of the loan. You may have to withdraw a minimum amount each time you access the account. The application process includes a credit check, property appraisal, and closing costs, with the option to renew the line when the term of the line expires. The interest rates are typically higher than a first mortgage but lower than credit cards. If you sell your home, you must pay off the loan or line of credit.
Considering All the Small Business Financing Options
The options available to use for small business financing are not limited to just credit cards, family loans, micro loans, and home equity loans and lines of credit. Most small business owners find creative ways to approach relatives to cosign a loan or borrowing from, or offering equity to, friends. Some companies will assist you with the process of obtaining a loan from your 401(k) or IRA, but be aware if you don't pay it back, that's a withdrawal, so find out about early withdrawal penalties first.
Online Small Business Financing Sources
Small business financing is one of the most important aspects to research when you decide to run a company. There are many online sources can help home-based entrepreneurs to make the right financing choice. For credit card information check the website of the American Express Corporation. To get an idea what a contracts for loans from family members should include take a look at the small business section on http://www.quicken.com. You can find micro lenders in your area at http://www.sba.gov and for rates for home equity and other loans, visit http://www.bankrate.com.
