Home Equity Loan Versus Business Loan

Money is important for all businesses to start out up, operate and expand. The Small Business Administration (SBA) states that while poor management is cited most often because the reason businesses fail, inadequate or ill-timed financing may be a close second. They go on to mention HUD store that when trying to find money, you want to consider your company's debt-to-equity ratio--the relation between dollars you've borrowed and dollars you've invested in your business. The extra money owners have invested in their business, the better it's to draw in financing. Ideally, it's best to start your business on money you have in savings or otherwise liquid. But, like most people, you probably don't have that much money available and you'll need a loan. About the only way a startup business can get a bank loan is through one of the loan programs offered by the SBA, a federal agency that doesn't actually loan money directly, but rather guarantees the payback of a certain percentage to banks. Thus, you must prove your creditworthiness with the bank, which requires excellent credit. And, you must meet the complex SBA eligibility criteria. Home equity loans (second mortgages) are cost-effective ways of getting startup capital because they typically offer lower interest rates, the selection of a hard and fast mortgage rate or an adjustable rate mortgage (ARM) and shorter repayment terms and lower payments than other business loans. Unlike business loans, it's easy to qualify for a home equity loan, albeit your credit isn't perfect. Even if you already have a second mortgage, you may want to cash out on equity through mortgage refinancing because many times, the attractive rates and flexibility of second mortgages make more sense than to refinance your first mortgage, especially if your first mortgage rates are good.