A home equity loan can come in handy when you need cash rather quickly and don't want to apply for a traditional loan. When it comes to starting a business, you might be faced with the responsibility of having to pull funding from various different sources.
If you are a homeowner, you might want to consider taking out a home equity loan to help establish your business. Why?
- A home equity loan is generally low risk as long as you are in good standing with your mortgage payments and have some adequate equity in your home. It's always important to keep in mind that your home will be used as collateral to secure a loan.
- Home equity loan interest rates are currently low.
- Home equity loans don't come with the restrictions that business loans may come with so you can spend the money how you please.If a home equity loan sounds like an ideal way for you to fund your new business, here are a few things you must do in order to secure the best option.
Determine Which Type of Loan You'd Need
First, you'll need to choose between a regular home equity loan or a home equity line of credit (HELOC). The interest rate for a HELOC is usually variable and you can withdraw funds from the credit line piece-by-piece when the expenses come up and use it similar to how you would use a credit card. If you're not sure what your total business needs will be or if you would rather not receive all the funds at once, you may want to go with a HELOC if you're okay with your interest rate fluctuating a bit. With a home equity loan or second mortgage, you generally have a fixed rate and receive the entire loan amount in one lump sum. This is great for new business owners who have already analyzed their needs and have a precise budget in mind.
Explore Your Options
With home equity loans, it's easy to compare them online and shop around for the best offer. While exploring your options, the main factors you'll want to consider are interest rate, loan amount (if applicable) and the repayment term. Make sure the terms offered and monthly payment are something you can handle without struggling or dealing with any financial pressure. Starting a business is hectic enough without having to worry about defaulting on your loan.
Talk to a Loan Officer
If you still have questions after you've narrowed down some options, visit or call a loan officer and ask specific questions that you still need clarification on. You can chat with a professional online from the comfort of your own home. Consulting with a loan officer may help you receive more personalized advice as it relates to your unique situation and needs.
Apply and Get Organized
Once you've chosen a lender and feel confident with your decision, check your credit score before submitting an application. One of the first things lenders will pull is your credit once you apply and it will dictate the outcome of your loan results and terms. The application is only half of the equation, however. At this stage, you'll want to gather all your important documents and meet any requirements that have been asked of you as a part of the application follow up. You'll need bank statements, proof of identity, proof of ownership and equity, and so on. It's important to get organized and equipped with everything you need to help the application process run smoothly and receive a quicker response.
Review the Terms
If you qualify for the loan, you'll need to review the terms in detail to make sure you understand and agree with everything. It's important not to rush into anything, even if you're eager to get your business off the ground.
Access Your Funds and Start Using Them
Accessing your funds is the simple part. Depending on which type of loan you choose, you'll either receive a lump sum in your account or you'll be able to borrow against your line of credit to start building your business.
You can use the funds to invest in new equipment, tests and training, hired help, marketing, website design or any of other area of your business that needs to be established. The great thing about home equity loans in comparison to business loans is that they don't have strict requirements for how you use the money.
Ready to Get Your Business Off the Ground?
First, check on the equity in your home and ensure that you would most likely qualify for a loan. Then you can follow each of these steps after you've determined what your business needs in terms of funding. Take your time with each step, especially when it comes to comparing offers, filling out the application and making sure you truly understand the terms. When done correctly, a home equity loan can help get your business started on the right foot and relieve some stress and financial pressure from your plate in the early stages.