Loans On Equity
If you’ve tried to get a loan for your business over the last couple of years you may well have found it tougher than you expected. The reluctance of Britain’s banks to lend to small and medium-sized enterprises has been well-publicised as banks retain tight controls over their lending.
So, if you need capital to invest in your business then you may have to turn to alternative options. One such alternative is to use a home equity loan.
Banks Failing to Meet Business Loan Targets
In February 2011, Britain’s five main banks agreed a deal with the government nicknamed ‘Project Merlin’. In return for the government abandoning plans to target bank bonuses, the banks agreed to increase their lending to small and medium-sized businesses.
However, HSBC, the Royal Bank of Scotland, Barclays, Santander and Lloyds have fallen 11.5 per cent short of this target in the first quarter of 2011. Having agreed a target of £19 billion for January, February and March 2011, the five banks lent just £16.8 billion.
These figures demonstrate that business loans are still tough to agree on, meaning alternatives still need to be considered.
Home Equity Loan vs. Business Loan
With banks continuing to make it difficult for small businesses to obtain funding, many company owners have been forced to seek alternative ways of raising the money needed to expand their operations.
Home equity loans are one such alternative. A home equity loan allows you to borrow some or all of the equity in your home. It is typically separate from your main mortgage and often with a specialist lender. The lender takes a legal ‘charge’ over your home as security and you can typically borrow between £3,000 and over £100,000 (depending on your income and equity) over a period of 3 to 25 years.
One of the main advantages of a home equity loan over a business loan is that the interest rates charged can often be lower. Business loans are often priced for risk and depend on the collateral that you can provide to the bank. This means that you can often pay high rates of interest on a business loan.
As a lender has a legal ‘charge’ over your property when you take out a home equity loan, they are very likely to get their money back. So, they can afford to lend money at lower interest rates. You will often find that a home equity loan is available at a lower interest rate than other forms of borrowing, particularly if you have a clean credit history or you are borrowing a low proportion of your home’s value.
Home Equity Loans Idea for Self-Employed Applicants
If you run your own business – particularly if you are in your early years of trading – then lenders may be reluctant to agree to business loans or other types of finance. This is often because you don’t have sufficient company accounts or proof of your personal income.
As a home equity loan provider takes your home as security, they are often much more prepared to consider applications from self-employed clients. You may not have to provide the same level of documentation to confirm your income and the lender may be more sympathetic to the reasons behind your borrowing request.
To access the money tied in your home equity and get a great loan rate, book an appointment with the Mortgage Genie.