Other Loans Home Equity Line of Credit (HELOC)/Personal Business
I am combining Personal loans and a HELOC here since the reasons for taking on either loan type overlap and can essentially be the same. Utilizing a HELOC can be a good strategy. Often interest rates are lower than other loan types. Although the laws have changed, specifically the Tax Cuts and Jobs Act of 2017, and the interest is not always deductible, it still can be for certain things. In a nutshell, those certain things are most home improvements. Previously you could borrow via your HELOC for any reason and the interest was deductible. If your mortgage was born before December 15, 2015, any loans would be grandfathered in and thus the interest deductible. Loan limits apply as well. Like most things, risk is lurking. The fact that you are taking debt withstanding, the risk to consider is that when you take a HELOC, your home is collateral. It is one thing to lose a car if you default on an auto loan; you do not want to lose your home.
People use their HELOCs and take personal loans for any number of things, including an extravagant vacation, some home remodel, a boat, a 4X4, partial college education for kids or grandkids, motorcycle, new/used car, etc. Please tread carefully when it comes to any debt, but especially one tied to what is likely your biggest asset, your home.
Most of us do not have the funds to launch a Business. If it is a home-based business, maybe. Maybe all you need is a computer, access to the internet, a marketing budget, etc. If you are starting something more substantial, in all likelihood you will need a business loan. Many people consider this a justifiable reason to take on debt. I certainly believe in the entrepreneurial spirit, but you should be cautious before preceding; it is not without risk. I believe a lot of upfront research is required before jumping in and borrowing money to start a business. Are you certain that people want what you are offering and what differentiates you from established competitors? Those are just a few of the basic considerations.
Now that we are fully entrenched in the “Gig” community, millions of people are starting their own business. However, many are what I mentioned earlier, home-based businesses. If you must borrow, do all you can to keep your loan amount as low as possible. Maybe you have cash/savings on hand. Maybe you have friends who might want to invest in your business and you can raise funds through them. One thing I would not consider for one second; borrowing from your 401K or any retirement savings!! Please do not do that; from my perspective, those monies are untouchable and sacred.
I mentioned risk earlier. Roughly 20 percent of small businesses fail in the first year and nearly 50 percent fail within the first five years. I have some history using our HELOC as well as starting a small business a few times. Start a conversation, what questions do you have for me?