It's great that you're starting your own business! Congratulations!
As an accountant, I would recommend not using your house as leverage or assurance when getting a loan. There are a lot of things that can effect your business and the last thing you want is to lose your house as well.
Also, in the event of a lawsuit -- and because your house is being used as collateral, leverage, or assurance -- you can easily lose your house in the lawsuit as well.
My recommendation on getting a loan is to 1) prepare a convincing business plan -- what your business is, what you intend on doing, what is your product, what are your markets, and etc 2) have your business plans reviewed by an accountant & lawyer -- they will be able to point out pros & cons of your business approach and any legal threats. 3) Consider approaching the same accountant -- or a family accountant -- to ask for a referral to a banker.
Remember, Accountants have dealings and professional networks in the financial world. If the accountant you approach cannot generate at least two bankers that they know on a first name basis, you want to move on and find another one. Doctors and Lawyers are also good for this as they deal with bankers frequently as well.
With a solid business plan, review and approval, and a professional referral, your chances for a loan will be improved significantly.
Accountant & Owner
Tran'sActions Accounting, LLC
Thanks SOOO much Tran for the very sound advice.
Thanks for the great advice Tran! This will be helpful to anyone who is wanting to start a business of their own.
I was going to say something similar, but you put it very well. Banks will look very closely at your business plan, so it probably makes sense to focus on that side of things before you start thinking about what you can put up as collateral. A well-thought-out, well-written business plan is perhaps the best way to set yourself apart from other business owners.
To Lucy: remember that nothing in business is guaranteed, and it would be a very bad thing to put your home at risk just to get ahead in the short run.
No bank will take a home as collateral for a business loan - you would have to put up commercial collateral. But, you can always take a home equity loan (which would probably be easier to get with a lower interest rate and longer loan term) - then use those funds to start your business. But, a home equity loan is a consumer loan and not a business loan.
For a business loan, lenders look for two things 1) Your willingness to repay the loan - usuaully based on your credit score and 2) your ability to repay the loan - based on your current cash flow.
However, there are a lot of ways to bootstrap your own startup. From personal credit cards, micro loans to crowdfunding and friends and family loans. With any new business, you have to prove the business model first before any lender will provide funding.
Business Money Today
I'm a woman and wanted to start my own business. I wanted to get a loan from the bank. Can I use my house as some sort of pledge towards the loan? I understand that loans are hard to get from banks these days. How do I increase my chances of getting a loan?
Thank you for any advice.