Home Equity Loans For Small Business
A Home Equity Loan May Very Well Be The Best Option To Save Your Cash Flow and Keep Your Business Afloat
The recession has been hard on small and medium sized businesses. In many cases, the owners are now scrambling to try and secure additional capital for cash flow shortfalls, lender payouts, and even regular asset replacement.
If you’re business is under almost any type of stress, good luck finding a reasonably priced business loan in terms of interest rates. The “A” lenders are not lending, the “B” lenders don’t exist right now, so all that’s left are the pure asset based lenders in many cases. Not only do they lend on liquidation value of the assets, which by the way can be pretty low in the current economy, but the rates start in the mid teens and go up from there.
The obvious alternative in many cases is a home equity loan. Even with bad credit, a private second mortgage is likely going to cost less than any form of small business financing these days for businesses that are struggling.
The only real problem with this strategy is mindset. Too often, business owners and their spouses are reluctant to mortgage finance their homes any further into debt in fear of losing their home if things get really bad.
This is very understandable and a natural reaction to having to risk more than you’re comfortable with.
But here’s some things to think about.
If a small business has any debt outstanding right now, its likely partially secured by a personal guarantee. If all the home owners have signed the guarantee, then the home equity is already at risk.
Second, if the business is coming through a dry spell due to the recession and can see that things are starting to pick back up, a home equity loan would be less risky that any other form of asset based lending. For example, if the business could secure asset based financing for 24% on a $100,000 versus a home equity loan at 5% for the same amount, the business just saved $19,000 in expenses using a simple interest, no principal repayment calculation. Not only has the stress on the cash flow been reduced, but the business and business owner’s equity has not been diluted by these high rates.
If you’re a small business owner that requires additional capital in your business and has some amount of equity in your home, please give me a call and let me see if we can come up with a better financing solution than what you may be finding in the market place these days.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel