Like many people who own a small business, you may have taken out a home equity line of credit to supply yourself with a readily available stream of cash to fund the growth of your business. Home equity lines of credit are great for small businesses during the draw period, where the business owner has a very low payment on the line of credit. However, payments begin to grow exponentially over time, with payments becoming often unmanageable after the ten year draw period expires. As a small business owner, if you are facing payments that you cannot afford, you may want to consider refinancing your home equity line of credit. However, before you do so, there are many factors that you must weigh.
Should Small Business Owners Use Their Homes Equity To Finance Operations
One of the biggest factors when considering refinancing your home equity line of credit is the state of your small business. If your business has become very successful in the ten or so years since you took out the home equity line of credit, you are in a good position. Since your small business is providing you with a dependable source of income, chances are you will be able to afford the current payment on your home equity line of credit. However, refinancing may still make sense, as it could still help you save money in the long run. If you can refinance your home equity line of credit to get a lower APR and/or reduced fees, refinancing may be very beneficial. If refinancing will not save you money, there is no need to worry. However, if your business is not a source of income for you, and you are either breaking even or losing money from your business, refinancing may be necessary to the survival of your business. If you cannot pay the increased payments on your home equity line of credit, you have to refinance or you may risk losing your home. For these reasons, the state of your business is the biggest factor you should consider when considering refinancing your home equity line of credit.
Another important factor when considering refinancing your home equity line of credit is if it will save you money. This process is fairly straightforward, and you should be able to factor this into your decision quickly. There are hundreds of online sites that provide up-to-date information on the best deals for refinancing your home equity line of credit. When researching, make sure to pay attention to the three most important figures: APR, minimum initial draw, and additional fees. If you can refinance your home equity line of credit so that you have a lower APR than your current line of credit, this can save you a lot of money in the long run. Additionally, a low minimum initial draw allows you much more flexibility in when you are allowed to withdraw money without incurring extra fees. Lastly, make sure to read the fine print so that you avoid being forced to pay unwanted fees. It may be a good idea to sit down with a financial advisor before refinancing to make sure you understand exactly what your payments will look like under your refinanced home equity line of credit.
Another final factor that you should weigh is other solutions to your inability to pay the current payments on your home equity line of credit. Although refinancing your home equity line of credit may make sense upon first glance, make sure to consider alternatives such as getting a home equity loan or refinancing your home equity line of credit and mortgage into a new mortgage. It is always smart to weigh all your options before making a final decision. This way, you can be sure that you save the most money possible, which is especially important because you want to keep both your small business and your house in your name.