Use of Refinance Home Mortgage In Place of Business Loan
At challenging economic conditions, businesses may find it hard or expensive to find loans. A recently laid off homeowner may want to tap into home equity to start a business. There may be many reasons why someone would want to refinance home mortgage loan and use the cash advance for business purposes. These could be sensible business decision or act of desperation. It needs to be closely looked at when should the home equity be used for business and when it is dangerous.
These could be good reasons to tap into home equity to for cash advance.
1. Investment or expansion opportunity may arise for a profitable business. There may be a need to move fast to close the deal. A business loan would take much longer to get approved by banks, while it could be relatively straight forward to cash home equity. Since business is doing well, it would be easy for the business owner to asses the risk in this situation and decide that equity in home may earn higher return.
2. Leased business premises may come up for sale. In this case, the business owner may invest cash from refinance home mortgage loan in buying the business premises. It could be as simple as transferring the equity in home to a commercial property. Homeowner could still keep the premises under his name and let his business carry on paying himself rent. By doing so, he would keep the ownership of the property private and separate from his business.
3. An opportunity may arise for an experienced professional to start his/her own business. For example an experienced beautician may find that a beauty shop near home is on the market and the owner wants a quick sale. Since the person would be familiar with the ins and outs of the business, she/he would be comfortable with using the family home equity to get into this business. Most banks do not offer business loans for leased premises and goodwill purchases.
On the other hand, one could find several dangers in using home equity for business purposes. These could be dangerous propositions of type.
1. Homeowner’s business may be failing fast and the homeowner may hope to stop the rot by cash injection. Especially small business owners get attached to their trade. Some may consider the business to be their off spring of a sort. They may not be able to see what is really coming and end up throwing good money after bad. The spouse or the partner of the entrepreneur may have to put his/her foot down and make him/her see that even with a cash injection there may not be an escape. Such businesses would not normally be able to get a business loan.
2. Recently, laid off breadwinner may want to start a business out of desperation. There are many people who have turned the adversities of being unemployed to successful businesses. When it is done for the right reasons, starting a business is very fulfilling and financially rewarding. In saying that, there are many business failures as well. Some people are just not cut out to be business owners.
3. Investing the cash from home equity loan in to someone else’s business without sufficient due diligent. Especially, if the businessman requiring your investment is living in an expensive house and driving fancy cars, ask yourself how come he needs your cash. It does not make it safer to invest in your brother’s business or loan to your brother. You may loose your money and your brother.
In this low interest environment there are many business opportunities becoming available for the right minded homeowners. A business that required hefty premiums to get into just a few years ago may be available for almost nothing other than little bit of cash to get it going again. There is a saying; Ships are safe in harbour, but that is not what they are made for.
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