Should I Take Out a Mortgage to Start a Business?

The decision to take a mortgage out on your home in order to fund the start up of a business is one that should be made carefully. When you leverage the equity in your home by taking out a mortgage there is the benefit of not owing any family members or partners for a loan. However, a mortgage loan obligates you to putting your home up as collateral for the money borrowed so it comes with a degree of risk.

Weighing the Risks of Mortgages

If your company were to fail, it is likely that the mortgage taken to fund it would remain for many years after the business's dissolution. Essentially, you would be paying for the unsuccessful business for as long as there is a remaining mortgage balance. However, you may also be able to refinance it to make it more affordable. Or, you may even be able to sell the home at a profit, pay the mortgage off and have virtually no lingering financial setbacks.

The need to exercise caution when considering taking a mortgage out to start your company should be very clear. If your company did fail, theoretically the money used to start the business would have been spent. Because that money was in the form of a mortgage loan the equity available on your home would be greatly impacted if not potentially wiped out by that loan. Yet, you would still essentially be committed to paying the mortgage for the remaining term.

Considering that many mortgage loans are for fifteen or thirty years, you could conceivably pay for the business's start up for quite a long time. Conversely, if it turns out the business is a success the loan may be able to be paid off in full. When you consider obtaining a mortgage as a means to getting funding for a start up business you are taking a great risk.

As long as you realize the potential outcomes for taking such a risk, there is no reason not to consider making use of available funding for your company by way of your home's equity. The problem is that if you ever had trouble making payments on the mortgage, your home ownership could be jeopardized. If this were to happen to a loan for a business that had already proven unsuccessful, it could pose much more in the way of both personal and business financial difficulties.

No one enters a mortgage with the intention of not being able to manage payments, but when a business and the irregular income that often accompanies it factor in, it is possible to find oneself in the position of being unable to keep up with all expenses. Applying for a mortgage loan is also an involved process which can take time to complete. Yet, if there is plenty of available equity in the home and you choose to borrow a nominal amount, it could make for easy funding of a business that winds up succeeding and earning the loan amount and then some back.

Making the Best Decision

Many people who decide to go into business for themselves would prefer to owe a bank or other lending institution for borrowed money instead of owing a family member or a friend. This is one real benefit to choosing a carefully calculated loan amount and borrowing the money for your business against your home. Also, if the company succeeds, it is possible the money it earns will be far greater than the amount of the mortgage taken out to start the business.

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