How it works
You borrow against the equity in your home and use the cash to start or grow a business. There are two common ways to do it. A home equity loan adds a second, fixed-rate loan and leaves your first mortgage alone. A cash-out refinance replaces your mortgage with a larger one and pays you the difference.
Either way, the loan is a personal debt secured by your home. The lender looks at you, your income and your home, not your business plan.
The upside
- Rates on home-secured loans are often lower than on unsecured or startup business loans.
- Longer terms can mean a smaller monthly payment while the business ramps up.
- A fixed-rate home equity loan gives you a set payment you can plan around.
- You don't usually need a business track record to qualify.
The risks
Most new businesses take time to turn a profit, and some don't make it. If the business can't support the loan, the payment still comes out of your household budget. Falling behind on a loan secured by your home can put the home at risk.
You also mix personal and business money. That can make bookkeeping and taxes more complicated, and it ties your family's housing to the fate of the business.
Qualifying: timing matters
Lenders qualify you on the income you can document today. If you plan to leave a steady job to start your business, apply while that income is still in place. New self-employment income usually isn't counted until it has a track record, often shown on tax returns.
Your credit, existing debts and home's value also shape how much you can borrow. You need a credit score of at least 620 for a CapCenter loan. CapCenter home equity loans range from $50,000 to $250,000, and the maximum depends on the loan type and purpose; a loan consultant can tell you yours.
Alternatives to compare
- SBA-backed loans, which are designed for small businesses
- Business lines of credit or equipment financing
- Personal savings, which avoid debt entirely
- Investors or partners, who share the risk and the reward
- Starting smaller and growing from early revenue
Questions to answer before you borrow
- Could you make the payment for a year or more if the business earned nothing?
- How much do you truly need, and when?
- Do you have an emergency fund separate from the business money?
- Have you talked with a tax professional about how the interest may be treated?
- Would your household be okay if the business closed?
If a home equity loan fits
Borrow only what your plan needs, and keep the funds in a separate business account so you can track them. CapCenter home equity loans are for single-family primary residences and second homes, with a fixed rate for 15, 20 or 30 years and ZERO Closing Costs (restrictions apply). A loan consultant can walk you through the numbers.
