Should I Use my Home for Growth?

I’ve been operating a part time business out of my home for about a year. I would like to take it full time and rent space elsewhere. What do you think about taking a second mortgage out on my home to acquire the capital? First, if you have a family, you need to talk to them before going any further. Your spouse would be seriously affected if the business doesn’t succeed. They could lose their home and their lifestyle could be dramatically altered. If your spouse understands the risk and is supportive, then this could be a valid alternative. If you are single and the business fails, you impact only yourself. Unpleasant, though it would be, it is totally your decision. Second, is this a legitimate financial option for going into business full time? I think so, but I also believe there are questions you must answer prior to mortgaging a home. 1. Have you gotten financial counsel from businesses similar to yours? What mistakes did they make? What did they do correctly? Learn as much as possible from their experiences. 2. Is the part time income likely to double once you go full time? Project how long. 3. Will a second mortgage be sufficient to pay all the expenses necessary to keep the doors open for a year? 4. Do you have a written marketing plan that will help you bring about the increased income quickly? 5. Will a year be enough time to make this a viable full time position? Negotiate the lowest interest rate possible on the second mortgage. The lower the interest rate the lower the payments.  Some financial institutions may not allow you to take a second mortgage to finance a new business. But if they are interested, they will probably want to see your business plan. Have it ready. The more prepared you are when you go into the bank; the more confident they will feel about giving you the loan. The above is not meant to throw a wet blanket on your enthusiasm. It is meant to distribute some hard-won wisdom. Evaluate the pros against the cons and be certain the pros win.

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