One of the biggest obstacles to starting a business is obtaining the seed money. Most businesses require a substantial investment, even franchises. Once the business is started, owners often need access to credit. When cash flow slows down, or a piece of equipment needs repair, business owners cannot afford to suspend operations. They often need to spend money the business doesn’t have in order to keep making money. Home equity can help you start your business and keep it running.
If you are considering starting a restaurant, store, marketing agency, or other business that requires capital investment, a business loan is often necessary, unless you have tons of cash lying around. Depending on the type of home mortgage you have, your home may help you secure a business loan.
When banks evaluate business loan applications, they look for several things. One is the viability of the business. The bank must see a business plan that shows realistic profitability targets. These targets must be obtainable within a span of time that makes the bank comfortable the loan will remain current. The bank also considers the level of expenses the business will take on compared to its revenues. Showing the bank that the business will generate positive cash flow is of fundamental importance.
A bank will also consider assets. When dealing with a new business, the enterprise itself is unlikely to have assets. The bank will want to see that the business owner has assets. If you have home equity, then you are likely to be approved for the loan, provided that the business plan is viable.
Another option is to use a home equity loan to raise seed money. This provides several advantages, as outlined by NerdWallet. There is much less paperwork involved. Home equity loans do not require the submission of a business plan, so approval is much faster and easier. The interest is also tax deductible. In addition, unlike a business loan, a home equity loan does not jeopardize and property of the business, such as equipment or buildings needed to sustain operations. A business owner can also open a home equity line of credit (HELOC). A HELOC gives the business owner access to emergency funds when needed.
Home equity can be a valuable resource to a business owner. It can help secure a business loan, be used for seed money, or provide a source of emergency funding. All businesses need startup money and help when cash flow falls short. Home equity provides both.
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Matthew King is the owner of the Startup Forums, Alkries LLC, and co-owner at TR King Insurance Marketing. Partner at Independent Life Insurance Agent Association, Medicare Training 101, and Final Expense 101. When he's not creating content about running successful businesses here. He's most likely developing processes, diving into SEO, or gaming with his friends and wife.
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