If a small business owner owns their home, they can tap a the equity that they have built in there home in order to finance their new business. The entrepreneur would visit the bank that holds their mortgage to discuss the option with their banker of freeing up some of the monies that they have in their home. Often the home owner can access 70% of the equity that they have built up, and in some cases, they can access up to 90% of their home equity.
Home equity financing is advantageous over other forms of small business funding for a number of reasons. The interest rate on a home equity loan or line of credit is far less than credit cards. The interest that the small business owner pays on the loan is tax deductible. Repayment terms are spread out and maybe somewhat flexible and almost anybody who owns a house has access to that money built up in their home equity. Lenders are much more comfortable with approving a loan secured against a cash asset that the applicant has already built up so the small business owner with equity in their home stands a much better chance of success pursuing this route.
The small business owner does have to be very vigilant with this type of financing as they must consider if they are in an inflated real-estate market or not. If there is a real-estate bubble in the neighborhood their house is in, their home could have an extraordinarily high appraisal value. This appraisal will be the basis on which the home equity lender will determine how much they can lend out. The higher the value, the more money will be available to the borrower. In the current low interest rate environment that we are in today, borrowers can get a lot of money for a low rate. But if that rate should move up fairly quickly, it can become very difficult to pay back the loan. But with careful planning and consideration of the risks involved with borrowing money against home equity, the small business entrepreneur can have ready access to the money they have built into their homes.
By: Ken Bissonette
Posts Tagged Small Business Owner
Obtaining finance for your small or startup business can be an insurmountable problem. The number one problem that new businesses experience is a shortage of cash. So what is the solution for the small business entrepreneur? Let’s look at the sources of funds you can tap into and how to go about obtaining the money you need.
A business grant may very well be available right in your home state. The federal government doesn’t provide for small business in their grant programs. However, many states have development agencies that offer grants that are designed to assist the entrepreneur or small business owner either to start or expand their existing business.
It is vitally important that you do your homework before applying for a grant. Creating a business plan is a necessary evil that every application must have, even for existing businesses. Areas that the business plan must cover include an overview of the business and the business owners’ background, detailed description of the business or project and what funding is required.
A detailed projection of budgeted costs and potential income should be prepared, preferably with the help of a CPA or other qualified professional licensed in your state.
You will need to detail how the funds will be spent as well as a market analysis of your target market. The famous SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis will provide a good basis on which to assess the application for funds.
It is important to remember that SBA’s provide a source of attractive loans to startup business as well. It would be a good idea to list what collateral you have as well in your business plan. If you have already put funds or assets into the project or business it shows your commitment and could very well elicit a favourable response to your application.
In the final analysis, your success or failure to secure funding, be it grants or loans, depends on many different factors. To give yourself the best chance, make use of a professional accountant or other business advisor who will assist you in securing the best source of funds for your business.
By: Susan Mulder
Are you a small business owner? If you are, you’ll know that running a small business is one of the most difficult things you’ll ever do in your life. You’re the company’s spokesperson, owner, founder, advertiser and investor. You are its inspiration. It is your livelihood and your passion. And like all passions it is all consuming.
It has you crunching numbers when you should be sleeping. It has you sketching out ideas on napkins in restaurants when you should be eating. But like any love affair the irritations are worth it. You know that almost nothing in your life can match the highs that your business gives you. So stick with it! Give your business all your heart and soul. But be sensible when it comes to your cash.
Business Finance.
Starting your business can be incredibly costly. Buying the machinery, renting the premises, purchasing the advertising space… well you get the picture, you’ve been there. You are also probably aware that the cost of kicking your business into life is so high it can affect your businesses ability to grow later on down the line.
You’ve established yourself as a great business; you know you have the ability to expand and to grow. But you just don’t have the cash to do it. But what is the best way to get that much needed cash injection? You don’t want to be taken for a ride. This is why you need to know about business finance.
Small Business Cost.
The first thing to do when you start investigating small business finance is to look carefully at what you want to achieve. Having clear goals is one of the basic rules of success in business. If you are going to borrow money to support your business you must have a clear aim in mind. That way you can easily track the success of any investment and see how much, making your small business grow will cost. So, determine what you want. Are you purchasing assets, such as land or machinery, or stock? Or are you looking to improve your market position through advertising, or expand into new markets? Whatever you’re doing be clear about your goals.
Small Business Finance.
There are two types of small business finance available to you. The first is the more traditional and common form, known as ‘debt finance’. This involves your company lending money from a financial institution, usually your bank. There are up sides to this deal, you get your cash and you keep all your business. You do have to pay more back than you borrowed in the first place, with the onus on you to repay as soon as possible.
However, if you have clearly identified a use for your money this should present no problem to you and allow you to expand quickly. This is why it is the route taken by the majority of small businesses. If you fail to pay back the money you have borrowed however the consequences are severe, as part of the agreement will involve collateral. Often, this could be your house.
A less common option is that of ‘equity finance’. Ever seen the TV show Dragon’s Den? Then you’ll know what I’m talking about. Equity finance is when an investor gives you the cash you need and in return you give him a share, or a stake of your business. As the investor has no assurances, unlike the bank, he or she requires a much greater pay off if things go well. They want some of those profits! However if things don’t work out, you won’t be sleeping in the streets!
Your Future.
So there are plenty of ways you can offset your small business cost. Small business finance is easy to get if you pitch correctly and your business is heading in the right direction. Whichever mode of business finance you choose make sure you keep following the dream and your passion might end up making you millions.
By: George Butler