Growing a business is a full time job. It requires planning, management, operations and of course, funding. Even for successful businesses, additional capital is needed to grow the business. For certain business owners, a second mortgage can be a great financial tool or capital investment alternative — if you use it wisely. You can use your second mortgage to invest in inventory, make an start up cost payment or open a new facility. The key to success is knowing when to get the second mortgage in business and how to use it properly.
Second Mortgage Advantages
Many do not think that obtaining a second mortgage is advantageous. But, they would be wrong. There are several benefits to second mortgages. When you take out a second mortgage, you have access to a larger amount of credit than you would with traditional personal loans or a business credit card. This higher loan amount also comes with lower interest rates than those traditional lending solutions. You may even get tax deductions from the interest paid on second mortgages. These are considerable benefits for any homeowner looking for financial solutions.
Here are a few ways that you can know it’s the right time to start shopping for a second mortgage:
You Have A Lot Of Equity In Your Home
Second mortgages are valued based on the equity you have in your home. You may have a lot of equity if you have been living in your home for a long time and paying down your principal. The longer you have been in your home, the more equity you are likely to have.
The other way you can get a lot of equity in your home is if the real estate market in your area experiences an increase in value. The value of your home can go up significantly, creating a nice deficit between the value and what you owe. This difference can be used as a capital infusion into your business, creating more wealth for you and your family without the need for personal loans.
Interest Rates Have Fallen
When you got your original home loan, you may not have gotten the best interest rate that you could. Part of the reason could be the state of your credit at the time, but prime interest rates may also have affected your terms. The higher that interest rates are for the market, the higher the rates you are likely to be offered.
If rates have dropped in the market, you may be able to take advantage of lower interest rates. You might consider refinancing your loan instead, but a second mortgage can offer you instant cash instead of lowering your monthly payment. For a growing business, this added cash flow management flexibility could be crucial. The second mortgage will also offer you lower interest rates than what you could get from a personal loan.
You Have A Better Credit Score
When your credit improves, you can qualify for better terms. Again, you can refinance your primary loan to lower your monthly payment or to pay off your home faster, but getting a second mortgage will help you get the infusion of cash that your business needs. With an improved credit score, you will have a lot more options to get an easy business loan with great terms, giving your company cash to reinvest in inventory, employees or commercial space.
Types Of Second Mortgages
Yes, second mortgages may provide an excellent solution to secure business funding you require or pay off business debt. However, it is important to know what types of mortgages are available to you. There are two types of second mortgages you will encounter:
- Home Equity Loans
- Home Equity Line Of Credit
A home equity loan acts like your regular mortgage. Therefore, you already know how it works. A home equity line of credit is different, however. A line of credit from home equity is more like a credit card than a mortgage. According to your equity, you can gain access to a certain amount of credit. This type of second mortgage often has variable interest rates and no set repayment term. Consider both options before jumping into a second mortgage.
To run your business to new heights, you do not need inspirational career quotes. A second mortgage can be just the financial solution that you need. Talk with several commercial lenders to find the best terms that you can get, including the lowest interest rates and the best overall terms. You can use the loan to finance your company operations or payroll expenses. Or, you can use it to consolidate current business loans or business debts. Regardless, find the right lender to explore your options and give your business the funding it can use for increased profits.
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