Tweet

How to Buy a Business Using a Home Equity Loan

Guest post by: Global BX

Article Overview: Business buyers are always on the lookout for ways to acquire financing than can help them start a business or purchase an already existing one. If you intend to buy a business, your options may be limited depending on the value of your assets, your credit history and the incentives the seller is willing to offer. As a smart business buyer, you should thoroughly assess every business opportunity and go for one that is worth your investment.

How to Buy a Business Using a Home Equity Loan

How to Finance your Dream Business Business buyers are always on the lookout for ways to acquire financing than can help them start a business or purchase an already existing one. If you intend to buy a business, your options may be limited depending on the value of your assets, your credit history and the incentives the seller is willing to offer. As a smart business buyer, you should thoroughly assess every business opportunity and go for one that is worth your investment. There are some cases when the best financing option is right in front of you, such as a home equity loan. This type of business loan is definitely worth considering.

Home Equity

Home equity is a banking term defined as "the market value of a homeowner's unencumbered interest in the property." To make it simpler, it is the value of your home minus the amount you owe on it. For instance, if your home is worth $450,000 and your mortgage balance is $200,000, your home equity is 55.6 percent of $250,000. Most lending institutions and banks provide home equity loans.

Rules in Home Equity Loans

Before you risk the equity of your house on business financing, it is best to take a closer look at some factors. After all, buying a business is a risky endeavor. There are factors that you need to consider including loan rates, the amount of money you need to buy the business, and the current value of your home. The interest rate fluctuates with the current mortgage market but it also depends on the loan size and your credit rating. The first thing you need to do is to determine if a home equity loan is the right option for you. First, get a current appraisal of your property. From that figure deduct all debts and outstanding mortgages, and divide the sum by the appraised value of your property. If this number is 50 percent or more, it means that a home equity loan is a suitable financing option. Business advisors like an accountant, a business attorney, and a business broker can give you an estimate on the amount of money you'll need to buy a business. Once the cash payout of the loan is determined, the lender will give you a quote on interest rates and calculate a monthly payment.

Cash Flow Forecasting

When the banker has given you a monthly payment scheme, the next thing to do is business forecasting. By researching ahead of time, you will have a good idea on the amount of money your business will earn on a monthly basis. To determine your net profit, you have to subtract your monthly expenses. In some cases, you will pay off a home equity loan from a pre-tax operating profit. Your tax advisor or CPA can give recommendations on the best methods to make payments. There are also situations when you have to draw a salary equal to the monthly dues or get a personal loan for the business. Interest payments offer tax savings to the borrower and the company. These laws can be complex, but situations differ depending on the type of network you will form as you start the business and the way the loan is written. Expert advice is definitely worth the investment.

Other Ways to Obtain a Home Equity Loan

There are alternative ways for you to obtain a home equity loan if you want to buy an existing business. The seller may offer financing to cover a part of his asking price or in some cases, even the entire purchase price. The US Small Business Administration or SBA loan is also a good option, where the federal government gives a guarantee on the business loan. Overall, the best way to secure financing is to have multiple options available.

Related Articles
  When Should You Seek a Home Equity Loan?
  Cashing out, but staying in
  Funding Your Franchise
  Can You Afford A New Boat Loan
  What to look for when refinancing your home
  Non-Real Estate Loans Private Lenders
  Debt Consolidation and Refinancing – Is it Right for You?
  Guaranteed Car Loans
  Do I Offer Debt or Equity to Raise Capital
  Why doesnt the SBA include franchise territories in their loans and how am I supposed to finance the territory
  Consolidation Debt Management Money
  Getting Boat Finance For Your Dream Boat
  Anyone Can Get A Car Loan With Bad Credit
  Finding Information on Small Business Loans
  Buying Financing a Franchise
  Small Firms Loan Guarantee its better than selling your kidney
  How Do I Know If Refinancing is the Right Decision for Me?
  Bad Credit Auto Loans - Proper Solution for Your Online Car Financing
  Business Loan: The Debt to Equity Ratio
  Real Estate Backed Financing

Article Tags: business buyer, business buyers, buy a business, home equity, home equity loan, home equity loan rates



Related Forum Posts
Re: Quick Ways To Utilize SEO Effectively - 1. If you dont want too much competition from other SEO's, choose your keywords precisely.For example, Instead of keyword Loan choose keywords like Bank Loan, Equity Loan, Student Loan, Home Loan etc. Order of keyword also matter for search engines. Search engine treats ?Loan Equity? and ?Equity Loan? as different keywords. 2. Best seo practice is to get at least one of your primary keywords in domain or sub domain name of your website. You can use hyphens (-) to separate multiple keywords. For example: seo-service, seo-guidelines, free-seo each cover two keywords. 3. Get your second or third keywords in your directory name and filename. 4. Keep your webpage free from any syntax error, declare document type at the beginning and validate your HTML and CSS because search engine don?t like pages with too many errors. 5. Give a short Title in of your page in 3-9 words (60-80 characters) maximum in length containing your primary keyword. Remember it will be displayed in search results so choose wisely. 6. Try to include your most important keyword phrases in heading tags on your page if you can but keep in mind it should not be exactly same as title of your page. You can use (H1 H2 H3) tag for specifying anything important. To reduce size of heading use CSS. 7. Specify Meta keywords in heading of document. Limit it to 15 to 20 words. Although not all the search engines give importance but there is no harm doing it. Search engine like Yahoo still give it importance. 8. Write Your Meta Description tag attractive containing keywords because it will appear on the search engine result pages. 9. Use text for navigation menu instead of using images or Java scripts. 10. Try to include your most important keyword in hyper linked text and text and text that immediately precedes or follows the hyperlink. Do not use same keyword always use synonyms at few places. Just like instead of seo, I have use search engine optimization at many places on this page.
Home Equity to Finance your business - Jen, do you have Home Equity you can leverage? Maybe a relative or close family member can do it for you in return for an interest "balloon payment" at the end of 5 years (the rate would be above what they would get if they invested it in a GIC).
Should FDIC Worry about FHLB? - What do you think the impact would be on the Bank Insurance Fund with Federal Home Loan Advances for business? Especially since you can obtain a grant when used in combination with FHLB advance. The grant can be used for anything you want for your business (down payment to a seller or franchise fees, working capital...etc.) This puts the borrower in a pretty good position. Should FDIC worry about FHLB?
Re: How do you budget your life? - Here is my financial management categories for today: 15% Long Term Savings; 10% Home Expenses; 45% Business and Marketing charges; 10% Friends (Meeting); 20$ Scientific and Law Books. But this will change when it is August or September. Orxan
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

4 Steps To Hypnotize Your Business Prospects

Life is a Balancing Act!

Small Business Internet Marketing

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.