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Question about Equity on my house

mod_xx 306 45 December 7, 2015 at 11:28 AM
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Hello-

My wife and I have built enough equity on our house ($150K+) on 15-yr mortgage with about 11 year left. We would like to open a small business which is required to put down about $140K.
However, we don't have that kind of that much cash on hand.

I saw a few options like Home equity Loan, HELOC, or SBA loan. Their interests are still higher than refinance rate. I wonder if it is possible to redo/ start over 15-yr or 30-yr refinance to take $140K out of the equity in order to pay for Business setup.

Or if you guys have better option, please advise.

Thanks

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#2
Quote from mod_xx View Post :
Hello-

My wife and I have built enough equity on our house ($150K+) on 15-yr mortgage with about 11 year left. We would like to open a small business which is required to put down about $140K.
However, we don't have that kind of that much cash on hand.

I saw a few options like Home equity Loan, HELOC, or SBA loan. Their interests are still higher than refinance rate. I wonder if it is possible to redo/ start over 15-yr or 30-yr refinance to take $140K out of the equity in order to pay for Business setup.

Or if you guys have better option, please advise.

Thanks
If you can get a refi cash out loan sure why not. You can use the $ for whatever. I do question whether that would be the most fiscally sensible thing to do but no reason you can't, assuming you can find someone willing to do the refi for you.
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#3
I would look at SBA financing- the 7A and 504 programs are great as they offer 90% financing, and you are able to roll in some moving/renovation costs as well if you would like. Plus, the terms are usually better than conventional loans offered by the larger safer commercial banks, and in some cases you can have a 20-year loan with 25-year amort. What state are you in?
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#4
I know it is not what you want to hear, but if you have to take a loan out against your home to start a business, you shouldn't. Try to save up enough to get a loan from the SBA or some bank for your business or look to get some partners\private equity investors who are willing to invest. Not easy to do, but risking your home on a startup is just not a good idea.
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#5
Quote from Vindadu13 View Post :
I would look at SBA financing- the 7A and 504 programs are great as they offer 90% financing, and you are able to roll in some moving/renovation costs as well if you would like. Plus, the terms are usually better than conventional loans offered by the larger safer commercial banks, and in some cases you can have a 20-year loan with 25-year amort. What state are you in?
I live in PA.

I checked SBA rate (http://fitsmallbusiness.com/sba-l.../#SBARates)
Loan 50K or more
Under 7 years = 5.5% (3.25% base rate + 2.25% markup)
More than or 7 years = 6%(3.25% base rate + 2.75% markup)
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#6
Quote from YanksIn2009 View Post :
I know it is not what you want to hear, but if you have to take a loan out against your home to start a business, you shouldn't. Try to save up enough to get a loan from the SBA or some bank for your business or look to get some partners\private equity investors who are willing to invest. Not easy to do, but risking your home on a startup is just not a good idea.
I know it is risky. Please advise. Does SBA or the bank still need my house as collateral?
It seems like SBA requires that I need to be the business for 2 years to be eligible.
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Last edited by mod_xx December 7, 2015 at 08:25 PM
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#7
I will make appointment to talk to Pennsylvania Small Business Development Centers (SBDC) to find out exact information.
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Quote from mod_xx View Post :
I know it is risky. Please advise. Does SBA or the bank still need my house as collateral?
It seems like SBA requires that I need to be the business for 2 years to be eligible.

Not sure as the SBA requirements can be a pita in many cases. It also depends on the type of business involved whether it be real estate (where the property itself can serve as collateral to a great extent) or just some retail store for ex. (where you would be renting) or something else. You would have to check with them and your local bank who is a part of it to find out the details in your case. Either way they will go over your business plan and financials and want you to have skin in the game (20-30% or more in most cases) so you simply need to save up the cash or get some investors.

That being said, it is just a bad idea to put one's home into the equation as too many small businesses fail to be taking on that kind of risk imo. There are reasons one incorporates when forming a business not the least of which are liability protection and the protection of personal assets. If you use your main residence and have no other assets of note, then that whole point is defeated to say nothing of the fact that you could end up homeless.
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#9
So long as your LTV<80% you should be good or pay PMI; there will be refinance costs tho.
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#10
You could refi your current mortgage and take out money to the 80% mark. If you don't want to touch your first you can take out a second. There are lenders that will go to 90% of the value on either a line of credit or a fixed rate loan. You could actually pull money out on a first (better rate and terms) and once you close on that one you could then do a second and get more if you needed.
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Last edited by Boomancini December 8, 2015 at 10:53 PM
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