Editor's choice: First Down Funding business loans
- Works with bad credit and most industries
- Only 100 days in business required
- No credit check
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As a business owner, you’re likely always searching for ways to leverage your liquid assets to expand your business. If you have a piece of property, you may be able to use its equity as security for a loan. You don’t have to own the property outright, and you could qualify for much lower rates than you would with an unsecured loan. Just be aware that this means added risk — should you default, you may lose your property.
Business equity loans work similarly to home equity loans — you leverage the amount of equity you have in a piece of property you own to act as security for a loan. Because of this security, you can generally expect lower interest rates and better terms, especially if the property has a good deal of equity.
Lenders will require you to submit a business proposal when you apply for a loan and to have your property evaluated. This allows lenders to determine if lending to your business is a good investment, and if so, the terms your business qualifies for. You should be able to find loans with variable and fixed rates and interest-only repayment periods. However, terms can be quite diverse, so you’ll want to take your time looking for a lender that matches your business’s needs.
Because business equity loans are similar to home equity loans, you can use the same type of equity calculation for each. For example, if your business owns a $350,000 property and has $100,000 left on the mortgage loan, your business has $200,000 of equity.
This doesn’t mean you’ll be able to borrow $200,000. Most lenders will only allow you to borrow 80% of the total equity in your property. Depending on the equity your business has and the amount you have left on your loan, it may be worthwhile to compare other secured business loans to see if there’s another way to borrow the amount you need.
A business equity loan can provide funding for a business that already has a property. Many lenders offer lower rates because of the lower risk, but remember: less risk for the lender results in more risk for you. Your property will be on the line, whether you choose to use a commercial or residential property. Compare your other business loan options to find more secured and unsecured loans that can be used to fund your next business project.
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