It can be scary to put all your eggs in one business basket so to speak and it can be even scarier to use your home as collateral to finance that business or to purchase a commercial building in order to run your business. But, just because something is scary doesn’t necessary make it a bad idea or rather a bad business decision.
Business purpose loans, not too many people are familiar with what exactly they need to do in order to secure these particular kinds of loans. Moreover, even the people that do have an idea of what makes business purpose loans unique, they are often still on the fence about whether or not they are a good business decision at the end of the day. The truth is it is risky business to offering up one’s house as collateral for a business. So, how do you if business purpose loans are right for you and your particular industry? Well, that’s a wonderful question.
In order to determine if these kinds of loans are right for you, you have to ask yourself a few questions. For starters, you need to figure out if you are actually comfortable with using the equity in your home. The truth is if you are starting out as a smaller business you really want to weigh your pros and cons. Yes, you need commercial financing, but at what cost? Remember, it is important to be completely realistic with your assets and your company’s needs.
Other questions you want to ask yourself include have you consider all your options i.e. have you already looked into peer-to-peer lending? Have you spoken with your financial advisor? Is your home’s equity the best option i.e. have you looked into using cash savings or deposits or company equipment as collateral? What about business inventory and accounts receivable? Of course, this is not to say that you should never consider a commercial purpose loan, but rather that you should go into it with your eyes wide open.
At the end of the day, regardless of whether or not you decide to secure a business/commercial purpose loan with your home equity, it is important to do as much as possible to mitigate the risks that are associated with defaulting on any commercial loan. This means keeping details of your home or asset’s worth. It also means figuring out which form of collateral is the right option for you. The good news is that the housing market is finally recovering so using your home’s equity is not only possible now, but it may just be the right option for you.
As previously mentioned, you need to do what’s in your and your company’s best interest i.e. no one can truly tell you what you should be comfortable with. Nevertheless, once you’ve thoroughly considered your options, the best way to secure a commercial loan that you are comfortable in the long run is to walk in the situation know the real deal and, of course, negotiating whenever possible.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.