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Need Funding for Your New Business? Try a Home Equity Loan

Need Funding for Your New Business? Try a Home Equity Loan

Finding the funding for a new business is not always easy. Especially if you have never started a business before, or the bank may not be very enthused about your business idea.

You may be tempted to just put up your savings to get the business off the ground. Most business advisors will tell you not to do that, however. Cashflow is a real problem not just for businesses, but also for your personal finances.

You can always opt for taking out a home equity loan if you’ve been living in your house for a while. There are several reasons that this could be a good idea. In this article, we will go over some of them.

Lower Interest Rates

One of the biggest reasons to use AMF equity loans for your business is because they generally have a lower interest rate than a business loan. After all, with your business, the bank will be taking a much greater risk. Businesses can easily fail and what will the bank be able to liquidate if you default on the loan?

Understandably, banks are hesitant to give a new, small business a fund to get started at low interest rates. Your home equity loan is the perfect solution as there is less risk if you default so banks can keep the interest low.

You Can Use it for Anything

Many business loans are strict about how you use the money they lend you. The bank doesn’t care what you do with a home equity loan, however. You don’t need to turn in any receipts or invoices or even tell them what you plan to use the money for.

Though it is ill advised, you could opt to use it for an around the world cruise if you so desire. If you choose to use it to grow your business, it is obviously going to be put to better use.

Things can change quickly in a new business so it is nice to have the flexibility to use the funds for things that may have been unexpected without needing to answer to a bank if it happens.

Home Equity vs HELOC

You will have different options when it comes time to borrow off of the equity in your home. One is a traditional home equity loan that is a loan just like your mortgage is. You will be given a timeline and make steady payments against it every month.

A HELOC is a Home Equity Line Of Credit which is a bit different. It does use the equity you’ve built up in your home but think of it like using a credit card rather than a loan. In this scenario, you will be given a revolving line of credit up to a preset amount based on how much equity you have. And you borrow against it as you need it.

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by Brian Perry // Brian Perry is a contributor to Businessing Magazine.

Opinions expressed by contributors are their own.