Home Equity Loans

 

Although becoming less common, some entrepreneurs still rely on their biggest asset for cash – the equity in their homes – to finance a franchise or business purchase. 

How it works: Relatively easy to obtain, assuming you have the required equity in your house, as well as good credit and income for repayment. There are 2 types of home equity loans: a standard home equity loan which is just like a regular mortgage in that you borrow a single lump sum and repay at a fixed monthly rate; and a home equity line of credit (HELOC) where you have access to borrow smaller funds—when needed— up to a predetermined fixed amount. The best option for business owners depends on the type of business or franchise you choose.

ADVANTAGES:

  • Easier process and lower interest rates than other non-secured options
  • Amount of collateral required is substantially less than other types of loans
  • Interest is most likely tax deductible

DISADVANTAGES:

  • If you don’t have equity in your home, this option is not available to you
  • Risky, especially if there is another housing market collapse
  • Your home is at risk if you fail to make payments (and your business, too)
  • There are typically closing costs and fees which can vary greatly by lender
  • HELOCs can have variable interest rates (based on the prime rate) that can make your monthly expense unpredictable

Learn More about Franchising

Franchising 101

“Owning a franchise allows you to go into business for yourself, but not by yourself.”
A franchise provides franchisees with a certain level of independence where they can operate their business.

Resources and Education

The International Franchise Association is committed to educating prospective franchisees on the dynamics of franchising and providing them with information to begin their evaluation of whether to become a franchisee. Beginning with the adoption in 1970 of the first franchise disclosure requirement in California.

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