Using Personal and Home Loans to Finance Your Small Business

If you own your own home and need to borrow money for your business, a home equity loan may be an option. As with any loan, there are risks, but home equity loans are unique in that if you default on your loan, you may lose both your home and your business.

Borrowing against home equity has become a popular source of credit, especially for small business owners. To accommodate the demand, lenders are offering home equity credit lines in a variety of ways.

Here are some of the advantages of taking out a home equity loan to finance your business:

• Relatively large loan amounts (up to the value of your home, less existing liens)
• Low interest rates. Read up on Finding the Best Mortgage Loan Rate.
• Tax advantages on interest payments

There are disadvantages too, of course, in addition to putting up your home to secure your loan: you may be asked to pay up-front fees, closing costs, or annual fees. Some home equity loans also require large balloon payments at the end of the loan, while others require higher monthly payments instead. If you choose a loan with a large balloon payment, be sure you know how you will cover the expense. In some cases you may have to borrow more money to make the balloon payment.