A lot of aspiring entrepreneurs needs one thing to be able to start or grow their business, and that is finding enough cash to fund their business, whether it is big or small. While there are lots of banking institution that offers different types of business loans, some businesspeople prefer to use their home equity instead as an additional source to fund their business.
However, before you go and ask your Mortgage Loans Arlington, TX and apply for a home equity loan, let us discuss first in detail what it is and the what perks that may come when having one.
What is Home Equity Loan?
If you own a house for so long, it might have already appreciated its value, especially if you have given at least 20 percent downpayment during the time you have acquired the house using a mortgage loan. Both home equity loan and HELOC loan is also called the second mortgage, and they use your home as collateral, thus leaving your house at risk if your business fails and won’t be able to repay the loan.
The Advantages of Home Equity Loan
It is easier to get approved
Getting approved for a home equity loan is a lot easier than a traditional business loan. The application process of a home equity loan and HELOC is the same as applying for a mortgage loan. Business loan, on the other hand, requires a lot of paper works. Some bank even requires a stable financial statement from your current business and a strong business plan for the upcoming years. This is the reason why most entrepreneurs prefer home equity loan since home equity lenders don’t care about your business financial status and business plan. What they are concerned about is the value of your house, a good source of income and good credit report.
It comes with a low-interest rate
When it comes interest rates, Home equity loan is a lot cheaper than a business loan. However, one should take note that the interest rate of a home equity loan is fixed while HELOC, on the other hand, may change over time. It always wise to ask your financial advisor when choosing between a home equity loan and HELOC before applying for one.
It offers flexible money management
Home equity loans and HELOC are different when it comes to giving you the money you have loaned. The home equity loan, once you get approved, gives you the total amount of the money loaned. HELOC, however, comes with flexible borrowing. It works like a credit card where you can borrow a certain amount, and the interest will only be applied to the outstanding balance.
Also read: How To Use Home Equity To Your Advantage
There you have it. Those mentioned above are the very reason why a home equity loan is more popular than a traditional business loan. However, always remember that getting this type of loan means you are putting your house at risk. So better to have a good business plan and proper financial management to lessen the risk of losing your house.