Some new business owners choose to initially fund their working capital needs with a HELOC or Home Equity Line of Credit. This type of loan facility is basically a second mortgage and similar to a revolving line of credit. The interest rate is tied to the prime rate so when rates move up or down the interest rate on the HELOC adjusts.
This is basically an interest-only payment and the principle does not get addressed or paid down. A Home Equity Loan is a principal and interest payment for a specific term, which is much different than a HELOC. Using a HELOC can be easier to start, but the business owner should try to establish business credit with their traditional lender or alternative lenders. The cost of funds may be a little higher, but in the long run, it will pay dividends.
Many business owners get hung up on rate pricing. Many times these are business owners with compromised credit scores and have had their business loan requests denied. The better solution here is to begin a credit repair program. With small loans, although the rate is important, there are several other factors that should be considered. Loan flexibility and prepayment penalty clauses play a very unique role. Business term loans for a hard asset purchase i.e. equipment loans are usually set to the depreciable life of the asset, 5-7 years in most instances. Keep in mind, as you continue to draw down on your home equity line, the overall value/net equity of your home diminishes. You do not want to risk losing your home if your business fails! You can always refinance the debt of your HELOC with a term loan and once that loan is paid the equity in your home increases to at least the value it once was prior to the HELOC, or where the current real estate market value is at the time.
At Capital Biz Solutions we are not a one size fits all loan advisor. We’re able to provide business owners with the capital they need in a timely fashion. We have unique broker affiliations throughout the US providing the best solution for your particular loan request. Loan types range from Personal Loan Programs, SBA Funding, Equipment Loans, Revolving Lines of Credit, M&A, and Cannabis Funding. Please check us out on the web at https://www.capitalbizsolutions.com/ or call us at 508 864 7758. We look forward to serving you with your working capital needs.
