If you are one of the many people that want to work for themselves and set up their own business, there are various challenges that you have to overcome. One of the major ones is making sure that you can fund the set up of your business, so you need to get some ideas together about how you will get the money that you need.
There are various options that you may be able to consider when it comes to funding your startup, including a range of loans that you may be eligible for. One of these is a secured or equity loan, which is designed for homeowners with some level of equity in their property. The lender then allows you to borrow against the available equity and make monthly repayments on the loan.
Is it a good idea?
When it comes to this type of loan, you do have to be very cautions. Secured loans do offer some benefits over personal loans. For instance, you can generally borrow more against your home than you can with a personal loan although this does depend on the lender, your credit status, and the amount of equity you actually have in your property. Another major benefit is that if you do have damaged credit and a low credit score, you are more likely to get accepted for a secured loan than a personal one. This is because there is less of a risk to the lender due to the collateral that you will be putting up whereas with an unsecured loan there is a risk that you will start missing payments and default on the loan.
However, despite these benefits there is also a big risk involved in taking out a secured loan to raise funds for your business. The major one is that the loan will be secured against your home, which means that the lender could seize your property if you do not keep up with repayments. While this is something that you may not do intentionally, there could come a time where you struggle to find the money to make payments. If this happens, you do risk losing your home. Another downside that you have to consider is that you may be repaying the loan for a very long time to come. Although you can choose from different repayment periods, many people want to keep the monthly repayments down and therefore choose a longer one. The maximum repayment periods on secured loans are much longer than on unsecured ones, so this is something else that you have to bear in mind.
In a nutshell, opting for a secured loan may have its benefits but it also comes with huge risks. You therefore have to think long and hard before you decide to take the plunge and sign on the dotted line. If you have other alternatives available, it may be best to consider these first so that you do not risk losing your home.