You need money for your business and you are wondering which one is better: a business loan or a home equity loan? The answer depends on your overall situation but here are some things to consider about each of these loans.
Business loans are more complicated to get. Typically you will be required to have 2 to 3 years of accountant prepared financial statements, the current year-to-date in-house financial statements, your personal net worth statement, the account receivable listing, account payable listing and inventory listing. If it is a start up, then you will need a business plan, balance sheet and cash flow projections. They will qualify your loan based on their assessment of your experience, your credit habits, the business your in, how much you have invested in your business and the earning your business generates.
For a home equity loan, they basically require that you have enough equity in your property. Your credit will be checked and your income will be requested, but basically you will be qualified based on the equity you have in your house. As a general rule, if your house is paid off, borrowing less than 50% of the value of the house provides the cheapest rate. And generally 75% is the next price point. Above 75%, there is a big jump in rates.
A common misconception is that with a business loan your house is not at risk whereas with a home equity loan it is. The truth is that with a business loan, they usually make you sign a personal covenant which means if you cannot pay the loan, you are personally liable. This means if you liquidate your business and it still is not enough to pay back the loan, they can come after your assets including your house.
In terms of rates, in general a home equity loan is cheaper, but it really depends on your business. If it is very profitable and in a good industry, then it may be cheaper than the home equity loan.
Running a business is a tough and risky venture. My hat’s off to all the entrepreneurs out there. It is endless hours of work and putting your own money and future on the line. So every aspects of your business should be carefully considered. Nobody plans to fail, but many fail to plan. If after a thorough investigation, you feel that, yes, you do need money for your business and yes, a home equity loan is the solution for you, then we would be happy to help you.
What do I need to do?
All you need to do is to call 604-831-4437 and ask for John to get the process started. There are many equity lenders out there and their rates and terms can differ greatly. Here is where the help of an alternative lending specialist is crucial in getting the right loan and saving you headaches and money at the same time. We are part of the Dominion Lending Centre’s network of brokers, the largest in Canada. We have access to over 200 lenders Canada-wide.
Alternative Lending.ca helps people get mortgage loans outside of the bank. We are non-bank lending experts. This means we are also experts in second mortgages, home equity loans and private lending. Our office is in Vancouver, but we can help individuals in all parts of BC and various locations in Alberta, Manitoba, Saskatchewan and Ontario. If you have any questions please contact us.
