Tapping into Your Current Assets to Finance Your Home Business

One of the most challenging parts of opening your own business is finding the capital needed for start-up. current assetsWhile you can always seek business loans, investment, and partnerships, it may be possible to take the assets you already have and finance your business through a home equity loan, retirement accounts, or even your life insurance. Let’s discuss each possibility separately.

Home Equity Loans

A home equity loan comes in the form of a lump sum of funds that will have to be paid off at a fixed or variable rate over a determined period of time. As long as your home’s value has  appreciated since you took on your mortgage, you shouldn’t have trouble finding a bank or mortgage that will be willing to lend you the start-up capital you need for your home business. Your credit limit will determine the maximum amount, and often lenders will prefer to loan as much as possible because they end up making the most money on the deal in the end. Compared with a more traditional business loan, you’re probably going to end up paying less in interest.

Try to avoid getting yourself in a situation where your interest rates are variable. While there is a chance that your rate may fall, it’s much more likely that you’ll end up having to pay more than expected due to rising interest rates. You will of course need to discuss this with an expert, but as long as you move forward with plenty of caution, using your home and land value may be the break you need to get your business flourishing.

Retirement Accounts

If you’ve put a lot of money into your IRA or 401(k), then there’s a good chance you can use these assets for some start up costs. Of course you’ll be borrowing against your retirement. Chances are you’ll need to have the funds transferred to a commercial retirement fund, which allows you to invest your money in your business. If you’re not retirement age quite yet, make sure to consult a professional. If you don’t manage this correctly you may have to pay additional taxes and early withdrawal fees. If you’re at retirement age already, then you should probably still work with a professional, but there are a lot less worries to stress over when using your retirement accounts as funding for your business.

Life Insurance

If you’ve been paying into a life insurance plan, there’s a good chance you can tap into these assets to fund your new home business. You’ll have to check with your life insurance provider concerning any payout (or “surrender”) fees and how much you actually qualify for based on the plan you have. The plan you have will also determine if you can take loans on your life insurance policy, withdraw certain amounts, or cash out completely. No matter which route you go, you’ll end up getting less than the full death benefit, but the payment is often going to be a huge help when starting a new business.

You will also have to check on how taxes are handled in your state. Past that, if you plan on a full cash-out, then just shop around for the best life insurance settlement broker, as some will bring better results (and more money) than others. While the loans are comparable to a home equity loan, a cash-out or withdrawal means that the money is no longer in your life insurance, so take the time to consider all your options before taking the plunge.

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ABOUT THE AUTHOR

Elizabeth Roberts

Elizabeth Roberts

Liz Roberts and her team are continuously providing information to people who are ready to repair their credit and improve their credit score. Also NewHorizon.org team strives to empower the homebased and small business owners by bringing information that can help them to manage and grow their businesses. Let our 24+ years of business finance experience help you to get the financing you need! CONTACT US if need financing for your business.

4 Comments
  1. Home equity loan would have great a year go, but my house has depreciated a little since I bought it, so that goes out the window. As far as retirement fund goes, I much rather not touch that if I don’t have to. So that leaves me with one option and that’s my life insurance. From what I know, I can get something along the line of 80 percent of what I paid so far if I cancel it now, so that’s most likely going to be enough to supplement my business fund. I hate to stop anything in the middle, but I’ve got to do something to fund my business and my life insurance will have to be sacrificed for it.

    • Hi Larry, starting a business is expensive! When regular bank financing fails you its nice to know you have options! But before you cash in your life insurance just think about what the use of funds will be. Sometimes there are alternatives to shelling out large amounts of your working capital. For example, if you need some of that money to buy your business equipment, you should consider leasing the equipment. You can get the equipment you need with only having to pay first and last payment. Thus you preserve your working capital and your life insurance :)!

      Good Luck!
      Mel

  2. A home equity loan is a viable option for me, but borrowing against my home just doesn’t feel right. I don’t know if I’m being too conservative or if I’m just being prudent about it. On one hand, I don’t want to lose the opportunity to start my own business and on the other I feel as though i should wait until I save enough money so that I don’t have to borrow. Do I take a change and borrow? Or do I take the safer path? It’s a tough decision to make.

    • Hello Jeremy! Starting a business is taking a risk. You don’t know if it will be successful or not despite all the planning and research. But if you will not try, you will not know. I think you should follow your gut feeling. Follow your instinct! Also ask yourself if you are ready for the consequences like losing your house if you fail.

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NewHorizon.org is an independent, advertising supported website. The owner of the site may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website. NewHorizon.org has not reviewed all available credit card offers in the marketplace.

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