There are lots of ways to go about getting financing for your startup, many of which involve convincing other people that it is a project worth supporting.
Of course if you do not want to go through the hassle of courting investors, applying for bank loans or going to friends and family in search of some seed money, one of the other options is to provide the capital yourself. And if you do not have a huge amount of savings available, you might consider refinancing your home.
So can you actually borrow against the value of the house you own to get your fledgling business off the ground, and is this a good idea in the first place?
Considering your options.
First of all, it is worth pointing out that you can indeed remortgage your home, or get a home equity loan or line of credit, if you want to pump this cash into a startup.
This could even be desirable compared with seeking a small business loan, because the lender will not necessarily be interested with any plans and projections for the startup itself; the main thing that will concern them is whether you have the means to make the repayments.
Both your household income and your credit rating will come into play here, so consider these aspects before diving in.
Getting the best mortgage rate.
If you do decide to remortgage, checking out current mortgage rates on this page is sensible because it will let you get the best possible package from a mainstream lender.
Rates are at record lows at the moment, so refinancing your home could be an attractive option if you want to avoid being hit with steep interest payments, particularly as your startup is entering an especially important stage of its development.
You should also aim to compare the rates of a remortgaging package against the expense of seeking out other kinds of lending, as this could help to sway you in one direction or another. The more research you do, the more chance you have of securing affordable funding for your business.
Understanding the risks.
While refinancing your home to fund your startup might seem more attractive than battling to get a standard small business loan, it is vital to know what additional risks are involved in taking this path.
Chiefly, if you fail to keep up with repayments, your house may be repossessed, which is clearly a bigger conundrum than might arise if you were instead dealing with a business loan or some other form of investment.
Starting a company from scratch is always going to involve risk-taking, so it is simply a matter of determining the extent to which you are willing to expose yourself to the worst case scenario. Be realistic about the impact this might have and take onboard the worrying stats on startup failure rates before you go ahead and refinance your home for this particular purpose.
Hedging your bets.
Ultimately it may be most prudent for any startup owner to avoid putting all of their eggs in one basket and instead get funding for their endeavours from several sources, if possible.
One of these sources could be a loan taken against the value of your home, or the unused equity within it, and in fact a home equity line of credit rather than a full-blown loan might be more attractive as a result.
Hopefully you should now see that refinancing your home should be a carefully calculated move in funding your startup, and not a decision taken on a whim.