Second Mortgages to Fund Your Business
Many aspiring business owners overlook this convenient source of money: second mortgages. A second mortgage is a very affordable way to fund a business venture. Taking out a second mortgage, or home equity loan, is one of the simplest and fastest ways to borrow money for any person who wants to start or expand a business. If you have accumulated a considerable amount of equity in your home, this kind of loan could be the answer you need for providing that much-needed operating capital to your new or established company.
Typically, it is difficult to secure a business loan. Business loans are usually probed very closely. Lenders of business loans tend to scrutinize the nature of the business, your creditworthiness, and your experience in the industry of your business. If you have damaged credit or don’t have much experience or a well-developed business plan, your chances of obtaining a business loan are slim. Many people have been denied a business loan for one or more of those reasons. Some lenders are wary of funding certain types of business ventures, such as an entertainment or music business. Lenders of business loans tend to want to finance ventures that they feel are sure profit turners. If you are unable to provide proof that your business will be highly profitable and it is not in one of the undesirable industries, then your business loan application stands a high chance of being denied. Securing a second mortgage will eliminate this because this loan is secured by your home, not by the business or its assets.
One of the things that make a second mortgage attractive is that even though some of the closing costs and interest payments on a second mortgage are tax deductible, you can also get additional tax credits by using the money for business. The best way to accomplish this is to secure the second mortgage after you have incorporated your business. Then, you can draw up a loan agreement between you and your corporation. This way, you are essentially lending the money to your business and your business will make the payments on the loan. The business can then deduct the payments of the loan as a business expense. The money you save in the tax deductions can be applied toward the loan principal; thereby paying the loan off earlier. This will return equity back to your home faster and the loan will be paid off faster. If your business needs to secure funds in the future, you can just repeat this process.
This method can also help your company establish its own credit by reporting the payments that the business makes to the credit bureau. Your business will then be in a better position to borrow money and open accounts in its own name rather than using your name and credit, if your business has been incorporated. Before making the decision to use a second mortgage to finance your business, you should be well acquainted with the consequences if you default on this loan because the business has failed. If you do default on the loan, you run the risk of losing your home to foreclosure, so be sure you have researched all funding possibilities.
Suzanne Simpson is Mortgage Associate based in Canada. She has written many papers on Mortgage and related topics. For more information on <a href=”http://www.canadianmortgagesinc.ca/second_mortgage/“> second Mortgage</a> and <a href=”http://www.canadianmortgagesinc.ca/second_mortgage/canada.html“> second mortgage Canada</a>,
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