Can you use a new home as collateral to attain a start-up business loan? -

I m young and I understand that banks need collateral if you wish to borrow money. I m trying to start up a business and I need a loan, but I do not have collateral. I ve been approved to purchase an affordable home (1st time buyer) - would I be able to use this as a collateral in the near future? Or does the home value need to increase first in order to do so? Does the bank simply need something they can keep in case you fail?

You can only use the equity in the house as collateral - that is, what you have paid against the mortgage. If you just bought the house, or will soon, you won t have enough equity in the house to borrow against, which is a good thing. You don t want to put your house up for a business loan, or you could end up losing both.

If you just bought the home, you have no equity and therefore no collateral. If you are living in the U.S., visit the U. S. Small Business Administration office if you can. They can point you toward other sources of financing, grants, microloans, incubator organizations.Mortgaging your home for a business is risky and not advised. Keep in mind that more than 50% of all businesses fail for a variety of reasons. No business is worth it if there s a high potential for becoming homeless. Start up funding is only the beginning of your money chase. Depending on your product or service, the need for working capital is persistant and sometimes pervasive. It s not uncommon to log hundreds of sleepless hours over a decade in business worrying about how to rob from Peter to pay Paul until Mary makes good on her late payment for the last shipment you made to her business, or covering a client s rubber check when you re on a shoestring budget.

This used to happen a lot. Take my advice, for your own sake, even if you get the offer, don t take it. If your business fails, you lose your home.