Want To Use Home Equity to Start a Business? Here’s How

Raising capital to put a business idea into action is not that easy when you try to obtain a conventional loan from a bank. What can you do to get your fledgling venture off the ground?

If you own your own home, there’s a good chance that it is worth more than you paid for it. That means you can access a source of funds such as home improvement loans, to unlock some of the equity you have, giving you the money needed to start your business.

Want To Use Home Equity to Start a Business Here’s How

Let’s take a look at how home equity loans work and why they can be a viable solution for raising money that you might need.

A good source of cash

There are pros and cons attached to using the equity that has built up in your home to raise some cash.

The good news is that property prices have continued to rise at a rapid rate and if you have owned your home for ten years or more, it is likely to be worth a lot more than you paid for it.

If it continues to grow in value, the amount you borrow through a home equity loan should still leave you with a good amount of equity if and when you sell your home.

Trying to borrow money from a bank with an unsecured loan is likely to be more expensive and harder to do than taking out a home equity loan. Your bank might even ask for security by taking a charge against your property. If that’s the case, you might as well borrow the money directly, as it would likely be cheaper and easier to do anyway.

Several options to consider

You could choose a cash-out refinancing option. That involves replacing your existing mortgage with a new one for a higher amount. This gives you the extra cash you need to start your business.

This can often be more time-consuming and harder to do as you need to make a new application and prove your creditworthiness all over again to qualify for this type of loan.

Home equity loans tend to be a lot more straightforward. You should be able to qualify for one of these loans without any issues, as long as your home is worth more than you paid for it and you have sufficient equity, after deducting what you currently owe on your mortgage.

The interest rate you will be charged will often prove relatively inexpensive compared to what you might pay for a business loan.

Consider the risks

If you are borrowing money against the value of your home there is always a risk that the lender can take back your property if you don’t pay back the money.

You need to consider how you will repay the loan if your business idea does not work out.

As long as you understand what you are getting into with a home equity loan the bottom line is that it is a very cost-effective and efficient way of raising funds. Your dreams of starting a new business are within your reach if you use your home to put your idea into action.

Dragan Sutevski

Posted by Dragan Sutevski

Dragan Sutevski is a founder and CEO of Sutevski Consulting, creating business excellence through innovative thinking. Get more from Dragan on Twitter. Contact Dragan