August 2019

August 26, 2019May 19, 2022

Small Business Loan vs. Home Equity Loan: What’s Best for Your Business?

If you’re looking at financing options for your small business, whether you’re in the launching stage or you’re established and growing, you have many options. There are home equity loans, small business loans, and business equity loans, among others. We’ll dive into the differences between each so that you can decide which financing option is best for you and your business.

Option 1: Home Equity Loans for Small Business Owners

Unlike small business loans, home equity loans put fewer restrictions on what you can do with the money from the loan. Instead, you can use the funds how you wish. Home equity loans also often come with lower interest rates and lower monthly payments than a small business loan.

The application process for a home equity loan is faster and simpler than a small business loan, too. Assuming you meet your lender’s application requirements, you should expect the entire process to take about 30 to 45 days.

In fact, the most tedious part of applying for a home equity loan is gathering the necessary paperwork. At a minimum, you’ll need the following information and completed documents handy:

Internal Revenue Service (IRS) Form 4506T
Copy of driver’s license or other government-issued photo ID
Estimated home value and mortgage balance
Two most recent federal tax returns, including all schedules
Proof of homeowners insurance
Proof of income, such as W-2 forms, investment statements, Social Security Award letter, etc. (requirements vary depending on your employment status)

Option 2: Small Business Administration Loan

Patience is the key to SBA loans: the process taking anywhere from 60 to 90 days, and potentially longer depending on the amount of the loan. Putting together your application, as Fundera explains, is often the most time consuming.

In addition to filling out an application for a SBA loan, you’ll need to write a full business plan, produce financial statements showing adequate estimated cash flow, undergo a credit check, and gather documents, such as business licenses and a personal background statement, among other paperwork.

Read 4 Reasons Your Business’s SBA Loan Application Was Denied to learn the dos and don’ts of completing your SBA application >>

Unlike home equity loans which focus on numbers, small business loans take into account more subjective factors like your character and management abilities.

Option 3: Business Equity Loans

Think of a business equity loan like a home equity loan, except that the property you’re using as collateral is the business property. This means that, like a home equity loan, rates can be lower because of the collateral, but it also means the property must be owned and not rented. While the details will vary by lender, most will let you borrow up to 80% of your equity in the property.

When it comes to what kinds of properties will qualify for a business equity loan, the short answer is: it depends. Most lenders will have specifications and will carry out an inspection not unlike a home inspection.

Option 4: Home Equity Investments

Home equity loans, business equity loans, and small business loans will all take into consideration your credit score. Additionally, home equity loans often take into account your debt to income ratio. All three types of loans may have varying interest rates, meaning you’re subject to varying interest rate hikes throughout the life of your loan—and higher monthly payments.

If you have equity in your home, and don’t like the idea of taking on additional debt or unpredictable interest rates, a home equity investment may be your best bet. Hometap offers near-immediate access to your funds in exchange for a share of the future value of your home—without any interest or monthly payments.

Before you opt for home equity sharing, a home equity loan, a business equity loan, or an SBA loan, consider your specific financial situation. Even if you need funds fast, you’ll want to spend the extra time up front to make the right choice for you and your business. After all, when your home is involved, your decision affects not only your professional life, but your personal life, too.

Small business owners are no strangers to the financial insecurities that often accompany starting your own venture. When you’re looking to accelerate your small business’ growth, that usually means you’re also looking for the cash to help you do so. Beyond soliciting friends, family, and others in your network for financial help, you have several options for generating funds.

Small Business Administration (SBA) loans are one way to access funds if you’re having trouble securing a conventional business loan. However, the process can be lengthy and lenders often require you to provide an asset to serve as a guarantee. If you own a home, you have the option of taking out a home equity loan. This allows you to borrow against the equity you’ve accrued in your home, using your home as collateral.

Before you take out either a SBA or home equity loan, weigh the risks and rewards—and consider the alternatives.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

YOU SHOULD KNOW…

We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

August 13, 2019April 22, 2022

How to Eliminate Liens So You Can Access Your Equity

Knowing if there’s a lien on your property is critical information you need in order to make sound decisions for your financial future. With an involuntary lien, you cannot sell your property and your creditors can foreclose on your property if you fall behind on your mortgage payments.

As SFGATE also points out, credit monitoring agencies may note any involuntary liens against your home, negatively impacting your credit rating and potentially making it harder for you to take out other loans, whether secured or unsecured.

But What Is a Lien?

According to Investopedia.com, a real estate lien is “a legal claim on assets which allows the holder to obtain access to property if debts are not paid…and must be filed and approved by a county records office or state agency.” In other words, a lien is what gives creditors a way to collect their debt.

There are two types of liens: voluntary liens and involuntary liens. A voluntary lien, such as a mortgage loan, is one that is contractual; you agree to pay your monthly mortgage bill with interest. If you fall behind, your house serves as collateral. If you’ve already paid off your mortgage but took out a home equity line of credit, then you also have a lien on your home. You’re aware of these liens because you took the action that created the lien in the first place.

An involuntary lien is a lien placed without your consent. For Dummies gives an example: If you owe money to someone, such as a tax collector, but don’t pay, a lien is placed on your property.

Beyond voluntary and involuntary liens, there are specific types of liens that can be placed on your property. Read on to understand what they are as well as how you can get rid of the lien on your property.

Mechanical or Contractor’s Lien

Contractors can place a mechanical lien on your home if you hire them for a home improvement project and don’t pay them for both services and materials.

Why It Matters

You can’t sell or refinance your home if there is a mechanical lien on your home.
If time is an issue and you want to sell or refinance now, you may find yourself trying to dissolve the lien quickly, no matter the cost. With more time, you may be able to negotiate a better financial solution.

Tax Lien

If you or your business fails to pay taxes, the government puts a lien on your property. As Clean Slate Tax explains, the government won’t seize your property—yet. It simply means they get first dibs on your property before other creditors.

Why It Matters

A tax lien remains on your credit report for up to 10 years.
Tax liens are public information. Records are updated only once you pay off the debt.
If you don’t pay off the tax lien, the government can use a tax levy to seize your assets, including your bank accounts, your car, and, yes, even your home until they collect what they’re owed.

Judgement Lien

Taken to court over a debt and lost? You have what’s called a judgement lien. You’ll also receive a judgement lien if you simply ignore the summons, says credit.com.

Why It Matters

Like other liens, it can impact your credit score.
The lien is public information.

How Do You Remove Liens?

If you’ve found a lien on your property, there are a few steps you’ll want to take.

1. Check if the lien is paid off

Perhaps you already paid off the lien and you simply need to obtain a copy of your lien release. The lien holder—the person you owe money to—may not realize they need to remove the lien. BiggerPockets advises making the last lien payment contingent on the lien holder signing the lien release.

2. Pay off the lien

This is the easiest way to remove any lien. Once you’ve paid for it, you’ll need to fill out and file a release of lien form. Avvo recommends visiting your county clerk’s office or an attorney if you can’t find the necessary paperwork online. The form should include your name, the lien holder’s name, proof you paid your debt, and the location of the property.

3. Contact the credit bureaus

Once you’ve paid and filed your release of lien form, you’ll want to contact major credit bureaus and ensure the lien is removed from your credit report.

But what if you don’t have the money to pay off your lien in the first place? Now is the time to develop a strategy to eliminate your bad debts. Some homeowners find paying off their smallest debt first helps keep them on track. Others find paying off their highest interest debt first helps them save the most money in the long term.

Find the method that works for you. Once you pay off any involuntary liens on your home, you’ll open yourself up to numerous opportunities for accessing cash, such as the equity built up in your home.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

YOU SHOULD KNOW…

August 8, 2019March 29, 2023

Boost Your Credit Score, Boost Your Financial Health

Last updated March 29, 2023

Improving your credit score can give you access to better rates on your mortgage, better offers on a new loan, and better financial opportunities overall. We’ve rounded up the top five tips that will help you boost your credit score fast.

1. Check Your Credit Score Often

My FICO advises you carefully review your credit report from all three credit reporting agencies. Check for errors and dispute inaccurate information by contacting both your lender and the credit reporting agency.

You can monitor your credit on sites like Free Credit Report that allow you to keep tabs on your credit in real-time.

Do you own a small business? Try these strategies to fuel your business’s credit growth »

2. Close to Your Credit Limit? Pay It Off

Even if you pay your credit card on time, every time, you may be negatively impacting your credit score if you have a balance that’s more than 35% of your credit limit. That means if you have a card with a $10,000 limit, you’ll want to keep your balance under $3,500.

3. Don’t Close Old Accounts

While your credit history stays on your credit report for seven years, closing a card if you still have balances on other cards increases your credit utilization ratio. So, if you have three cards totaling $20,000 in credit and you have $5,000 of charges among them, that’s a 25% utilization. If you close a card and you have $15,000 of credit with a balance of $5,000 among those two cards, you have a 33% utilization. That may reduce your credit score. Check out our video on how credit utilization works.

Lenders also may look favorably on those with an older “credit age,” or the average age of your credit accounts. If you close that account you opened in college, it makes your credit age appear younger.

4. Open Up a New Credit Card

Opening a new card can not only increases your total credit line (improving your credit card utilization mentioned above) but also shows the credit bureau that you have the ability to manage different types of credit. For example, taking on a car loan or opening a credit card account with a store diversifies your “credit mix.” Just make sure you know the interest rate, signup fees, and any additional costs involved.

5. Stay Under—Well Under—Your Credit Limit

Just in case you skimmed over point number two, it’s important to keep your credit utilization low. Opening a new credit card doesn’t mean you have to go on a spending spree. You’ll want to monitor both your per-card and overall credit card utilization.

When you boost your credit score, you’ll find you unlock new opportunities for improving your financial situation. For example, a good credit score allows you to access loans with better interest rates and tap into the resources you already have, such as the equity built in your home.

Of course, staying below your credit limit and paying off high balances means tackling your bad debt. Start paying down debt (and improving your credit score) with your copy of The Homeowner’s Guide to Leveraging Good Debt and Eliminating Bad Debt.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.