There are a few things in life that can be simultaneously exciting and stressful to undertake. From making the right decision in choosing a college to picking a job, each of these choices can be weighty. With enough preparation behind you, however, you will eventually make the most informed decision. The same sentiment applies to the choice of starting a business.
Start-ups of any size, especially those that are small, require lots of financial resources behind you. If you are lacking in these resources or funds, a loan may be able to help you out. A HELOC is one such loan that can aid you. Also known as a home equity line of credit, you can use this loan to pay for staff, equipment, and other essential supplies to get your business started.
Here are six tips to consider for kickstarting your start-up:
What is the HELOC?
All entrepreneurs should know about the context of the loan they are pursuing. Make sure you have a good understanding of how a HELOC works once you are approved for the loan. Known as a home equity line of credit, a HELOC is generally regarded as a second mortgage. The loan works by using the equity that is stored in your home.
Think of credit cards you own and use on a daily basis. The HELOC works like a revolving line of credit. You use the money granted to you when needed. It’s an incredibly flexible means of funding projects like your business start-up. As long as you are in good standing with respect to your finances, you should be approved for one.
A home equity line of credit comes with several advantages as well, each of which ranging from good to great. As mentioned previously, the HELOC is incredibly flexible and does not need to be used all at once. Depending on how much equity is stored in your home, you are given the choice to use it when you need to.
Moreover, a HELOC is best used when you need additional cash to fund a short-term venture. As a result, your business startup may be the perfect opportunity to use your approved HELOC. Once things are going smoothly, you can repay the loan using the funds you made from your start-up!
Home Equity Loan Comparison
When choosing to start a business start-up, you may be offered the choice of going with another loan. Usually, this comes in the form of a home equity loan, which has its own unique characteristics. However, as it pertains to funding your business, it might be wise to still move ahead with the HELOC.
The reasoning behind this choice comes down to the given interest rate on the loan. For the most part, home equity loans come with a fixed interest rate. This can be rather challenging to pay off in the long run, especially if your start-up isn’t being profitable. When you take your chances with a loan, it’d be wise to go with the safer option.
Consider the Business
While starting a new company can be extremely fulfilling, be aware of potential drawbacks. That is because your HELOC will directly be correlated with the success of your start-up. Remember, you will be using your home as collateral, when applying for the loan.
If this start-up then fails, you put yourself at risk of losing your home completely. For example, many startups or businesses require a lot of funds upfront. Should you find this to be unsustainable over an extended period of time, it might be wise to delay the opening. Calculated risks are better than empty assumptions after all!
Once you have completed your research on how to fund your startup, the application aspect will be next. The first step here is to get all of your finances in order. For instance, make sure your debts are being managed, especially with mortgage payments. Other aspects, such as outstanding loans, should be taken care of.
Speak to an applicable lender about your situation, and what your goals are for the HELOC. A good lender should assess you accordingly and give you the best possible scenario. Get all your documents, sign what is required, and provide them with your finalized forms.
Wait for Approval
The next step to getting your HELOC is to simply wait it out. If your financial circumstances are already in great standing, the loan could be approved the same day of your application. Once everything has been successful, you are then granted the loan. Use your HELOC responsibly; you don’t want to spend on what isn’t needed.
A home equity line of credit can be extremely beneficial to those looking to fund secondary projects. If a business start-up is on the horizon, a HELOC might be your best bet to creating a successful company. Speak with a lender, in order to determine the path laid out for you!