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Should You Refinance Your Home to Fund a Business?

Refinance Your House

Starting your own business is a wonderful dream to have. Becoming your own boss and making all of the decisions without someone else looking over your shoulder sounds great, but there are downsides to having your own business as well.

One of the downsides is that unless you have a business partner you have all of the financial responsibility in your business. If you are considering starting a business but don’t have a lot of startup capital, should you refinance your home to fund a business?

To answer that question, let’s look at some of the steps you might take to help you arrive at a decision about whether or not to refinance your home to fund a business.

What Do You Owe?

Figure out how much you owe on any and all loans you have. If you are already mortgaged to the hilt, it might be a better idea to pay some debt off before you try to start a business. Although the idea of putting off your dream of starting and owning your own business could be disappointing, it may make the most financial sense.

Get an Appraisal Done

You need to know what your home is worth now. The best way to find out is by getting an appraisal. The current market value of your home could be far different than when you bought it. Its worth may have gone up if the housing market, in general, has gone up in the area in which you live, or it could have gone down.

How Much Equity Do You Have?

Determine the amount of equity you have in your home. If you have only recently purchased your home, you aren’t going to have very much equity in it yet beyond your down payment. Therefore, the option of refinancing your home is a very risky one.

For example, if you are able to refinance your home up to 100 percent of its value and your business should go under, you will lose not only your business, but the roof over your head as well. That could put both you and your family out on the street should your business venture turn south.

Find a Lender

This may or may not be your current lender, if you have one. Whatever you decide, make sure it is someone you can work with and also that the financial institution you are choosing is a reputable one.

Determine Cash Flow

Do you have cash flow projections of how much money your business will be bringing in each month? Will this amount allow you to pay not only the bills for your business, but also for you and any other family members depending on this income?

As you can see, whether or not you should refinance your home to fund a business depends on many factors. Nobody wants their dreams of business ownership squashed, but it depends on your individual circumstances as to whether it is the right decision for you or not. Either way, give the matter careful consideration rather than making a hasty decision that could cost you everything.

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Financial Author
Kayla is passionate about helping people get their finances in order so they can pursue a life of freedom. She quit her job to work for herself with over $148,000 of debt and swears it was the best decision she’s ever made!

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