Three Questions To Ask When Deciding If You Should Use A Home Equity Loan To Open A Business
Posted on: 29 November 2022
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Businesses are one of the biggest gambles next to casinos. Even with a solid business plan and a passion for your industry, there is a chance that your business will have trouble with growth. There is also a chance that your business can make you more successful than you ever imagined. If you are considering taking out a home equity loan in order to start your own personal business, here are three questions to ask yourself before you do this.
Have you gone over this plan with professionals?
Both a financial professional and a business professional should go over your completed business plan and financial plan for your business. The business consultant will be able to critique your business plan and let you know whether or not you need to make changes to the initial business plan and offerings before you officially start up your company. Speak with a financial planner to determine if the home equity line of credit is the best risk investment to make for your business. These two consultants will be able to provide you with a clear path forward.
Can you pay the loan without your new business?
Even successful businesses have a period of time where they will operate in the red during the foundational days. It is important to note that your business may not have a solid profit until the home equity loan needs to start being paid. Make a plan on how to make the monthly payments on the home equity line of credit without any money from your new company. If you are able to continue working your prior job until your business is turning a good profit, you will be able to pay on your line of credit while creating a new stream of income.
Is your home ok regardless of how the business works out?
The last thing that you want to do is put your actual home in jeopardy. Since a home equity line of credit is tied to the equity of your home, your house will be at risk if you do not pay on the line of credit. Before you apply for the home equity loan, speak with your spouse or anyone else that you own the home with. Come up with a plan on how to stabilize your finances to pay all of your current bills plus the loan, even with a dip in income. A financial plan that allows for the new payment will offer some emotional and financial security while you attempt to start up a new company.
For more information about home equity loans, talk to a finance company, such as MidwestOne Bank.