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4 Replies Last post: Jan 31, 2009 7:57 PM by DomainDiva

HELOC question

Dec 17, 2008 12:36 AM

Click to view Utahman's profile Start-up Utahman 2 posts since
Dec 16, 2008

Hi everyone -


I'm looking to fund a start-up with a HELOC and wanted to get some guidance.


I'm having no problem qualifying for the amount I would like but am having issues when the lender asks about the intended purpose. They go running when they hear anything about it being used to fund a business.


I spoke to Chase a few weeks ago and I'm pretty sure I disclosed that I was using the loan to fund a business venture. They didn't flinch but the rate was prime plus .5. Since then I have spoke to several other lenders with better rates that are more than happy to loan the money until they hear what it's for. Now I'm starting to wonder if Chase heard me say what I intended to do with the loan.


So my question is, is it ok to say that I want the loan to remodel my house but really use it to fund a start-up? Or are there certain institutions that are still allowing HELOCs to be used for business. Maybe Chase is one? I would hate to proceed with a loan only to find fine print that states the loan can be called if used for any unapproved purpose.


Any advice would be appreciated.


Thanks

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Click to view NoBullFunding's profile Mogul NoBullFunding 278 posts since
Oct 6, 2008
1. Re: HELOC question Dec 18, 2008 5:56 PM
in response to: Utahman
I used to run into this from time to time. When I was young and idealistic, I'd be very concerned when someone told me they were using a HELOC for business purposes, but as time went on I realized that I was just punishing the truthful borrowers.

I'm not advocating lying on application, but as a matter of reality, most lenders won't require proof of where the funds are going for a HELOC (unless you are refinancing other debt and they insist on cutting the checks directly) so if you say you are doing a minor renovation, you'd shouldn't catch to much grief. I'm actually a little surprised to hear that they even care what the funds are used for. People use HELOCS for all sorts of reasons...college tuition, cars, boats, vacations (a personal favorite of mine).
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Click to view Bridge's profile Mogul Bridge 364 posts since
Jun 3, 2008
2. Re: HELOC question Dec 18, 2008 10:17 PM
in response to: Utahman
I believe you are always best to be honest on lending applications; especially now.

That being said, view what the HELOC can be used for - does it say refinancing existing debt and/or consolidating credit card loans, auto loans, etc.

Play by the rules - if the HELOC allows you to do those things, use your credit cards for every home and business expense you have, then pay off or consolidate your credit card debt with the HELOC.

Your other alternative woudl be to get a start-up loan (SBA or otherwise) with your house as collateral. Same as the HELOC - your house is the collateral.

As a side note, prime + .5, at some point you pay the interest, seeing where prime is right now, how low a loan do you want?

Best of Luck
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Click to view Utahman's profile Start-up Utahman 2 posts since
Dec 16, 2008
3. Re: HELOC question Dec 19, 2008 1:52 PM
in response to: Utahman
I did speak with Chase again yesterday and it sounds like it's completely fine to use their HELOCs for whatever you want, including a start-up. FYI - Chase has lowered their loan to value to 60% from 70% just in the last two weeks. Maybe because they're being more conservative on ratios they have less of an issue with what the funds are used for.

I do like the perspective Bridge has to stay honest and use credit cards first then use the HELOC. This would get me 80% LTV at 3% (currently and likely for a while) tax deductible, and then with the credit card step, 30 day terms plus mileage. That's almost getting paid to borrow money! Assuming I don't loose a house in the process...

Thanks for the replys!
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Click to view Bridge's profile Mogul Bridge 364 posts since
Jun 3, 2008
4. Re: HELOC question Dec 19, 2008 5:12 PM
in response to: Utahman
When I started my business, my wife and I had a long talk about the financials. We took our a home equity (house prices had doubled in FL since we bought).

The conclusion - start the business, we had enough money for a year or so. If it did not work, sell he house, pay off the first and new second mortgage and start all over. FYI I left a six figure corporate job and have 3 kids ages 6-8 at the time so it was not like this was "risk" free.

Fortunately, the business took off and we never touched the HELOC.

Best of luck!
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