3 Ways to Use Your Home to Finance a Dream Business

coffee business

While a business can give you a ticket to financial freedom, building it requires a lot. One of these is capital.

The cost of starting a business can vary, but usually, it ranges from $3,000 to $50,000. It can be an amount not many dreamers can afford. If this is your position, then here’s a possible solution for you: use your home.

Here are three ways you can use your property to finance your company:

1. Apply for a Home Equity Line of Credit

Also known as HELOC, it is a revolving fund or credit. It’s like having a separate bank account for your business where you withdraw money for its needs. Repaying what you removed will replenish it up to the designated maximum amount.

HELOC offers many benefits to business owners who have built considerable equity on the property:

  • The chances of rejection are low. Lenders often feel uncomfortable extending a business loan to new entrepreneurs. To compensate for the lack of financial data, they may require tons of documents. Getting a HELOC may help you avoid that. Plus, because the home now serves as collateral, banks may feel more confident to provide you with a high amount depending on your property’s equity.
  • HELOC interest rates are often lower. HELOC interest rates can change, but they are usually no more than 5% to 7%. Business loans, meanwhile, can carry an interest rate of as much as 13.5%.

2. Get a Home Equity Loan

A home equity loan is different from HELOC since you will receive a lump sum, although you have the option to tell the lender to deposit it directly to your business account. However, both are similar because you’re borrowing money against your home’s value. If you’re in Kentucky or Ohio, both may be available on lenders that also offer a home loan.

stacked coins

Besides providing you with business funds, both HELOC and home equity loan offers a tax advantage. As long as your mortgage is $750,000 and above, you can deduct your interest and reduce your taxable income.

You may ask, though, doesn’t this deduction apply to substantial improvements to the property only? While it’s true, it can still benefit your business. These improvements or renovations may include adding a home office or converting your garage into a shop or office.

3. Start Your Business at Home

Contrary to popular belief, many businesses begin at home. Not only is the setup easier to manage, but it is also cost-effective:

  • You don’t have to rent a space. The rate for commercial rent is usually higher than that of an apartment or a home since these spaces are normally in central business districts. The demand is high, while most properties around the area also have an excellent market value. It is not impossible to pay at least $3,000 a month for rent alone.
  • You can claim deductions. The IRS allows you to claim business-related deductions even if you’re operating at home. These can range from equipment and supplies to utilities, rent, entertainment, communication, and travel. You may need to show proof of these expenses, but they can all help to reduce your taxable income and, in turn, tax liability.
  • You can pass on the savings to your consumers. Starting a business at home can give you a competitive advantage. Since you have more control over your expenses, you can offer your products and services at a lower price and then pass on the savings to your customers.

Looking for funds to pay the expenses of your dream business isn’t easy, but perhaps one of the answers is already available. If you have enough space and have built good equity on your property, use it to generate cash and savings.

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