home equity line

[BIGDAN315]

Just was wondering what you guys thought about using a home equity line to purchase equipment for a buisness ?

[Steve Frazier]

Are you willing to put your house at risk if your business fails? That's one thing I've vowed never to do, and I think it's especially risky right now with the building market in the slump it is in.

[Legdoc]

I think a HEL or a reverse mortgage is a recipe for disaster but I am a listener of Dave Ramsey.

[Finance Guy]

BIGDAN315... Some advice from the finance world.... NEVER put your house up for a equipment loan... Very bad idea.

Thank you Steve!

Todd

[BIGDAN315]

BIGDAN315... Some advice from the finance world.... NEVER put your house up for a equipment loan... Very bad idea.

Thank you Steve!

Todd

OK what are the consequences if I may ask ? Other then them taking my house if I don't make the payment which I don't forsee happening ?

[BIGDAN315]

Are you willing to put your house at risk if your business fails? That's one thing I've vowed never to do, and I think it's especially risky right now with the building market in the slump it is in.

Thought about that to. I really don't need to borrow the money.I can write a check from one of my acct. but have been told it doesn't make good buis sense either to pay cash sinse the interist is written off. I am going to get my buis line increased as soon as my income tax for last year is completed Then I will pay off the loan . So it will be temporary. I would rather keep buis. and personal finances seperate if I can.

[littledenny]

Best bet is to consult your accountant.

There's big differences in tax treatment for the various types of corporations, and for sole owners/partnerships. Maybe consider leasing, and write that off. Explore all your options.

I work with a guy who upgrades his equipment every year, simply so he doesn't have to pay any tax. But, he's got SO much invested in equipment that just sits. (He's a one guy operation, and has a different piece of equipment for every day of the week. While he thinks that it works for him, I figure he'll have to settle up sometime.

But I'm with Steve on this one - I'd never risk putting "Momma and the kids" on the street to buy equipment. And it's the "unforseen" that will get you.

[Finance Guy]

Well, losing your house is the main thing to consider.
Think about all the ways you could possibly miss a payment. You get hurt, family get's hurt, you run into a cash flow crunch at work and need cash but the bank rejects you because you have too much exposure (loans) with them. Collateralizing a depreciating asset with an appreciating asset should not be done. What is your business structure? Are you incorporated? What if your business gets sued and you lose your house over an equipment loan? Yikes. What if the equipment is stolen, breaks or burns up and insurance takes forever on the claim and contracts are lost and cash is tight?

Do you want the constant pressure of reminding yourself that if the payment is not made on the equipment your house will be foreclosed on?

Keep in mind no one foresees having financial difficulties but the reality is many do. Why take the chance and regret something that could have been easily avoided.
There are so many finance options available to business owners that do not have the risk involved with securing equipment with your house.

I know a few hard money lenders and they only secure loans with a deed to the house and guess what? They have a few house's for rent...

Todd

[BIGDAN315]

Well, losing your house is the main thing to consider.
Think about all the ways you could possibly miss a payment. You get hurt, family get's hurt, you run into a cash flow crunch at work and need cash but the bank rejects you because you have too much exposure (loans) with them. Collateralizing a depreciating asset with an appreciating asset should not be done. What is your business structure? Are you incorporated? What if your business gets sued and you lose your house over an equipment loan? Yikes. What if the equipment is stolen, breaks or burns up and insurance takes forever on the claim and contracts are lost and cash is tight?

Do you want the constant pressure of reminding yourself that if the payment is not made on the equipment your house will be foreclosed on?

Keep in mind no one foresees having financial difficulties but the reality is many do. Why take the chance and regret something that could have been easily avoided.
There are so many finance options available to business owners that do not have the risk involved with securing equipment with your house.

I know a few hard money lenders and they only secure loans with a deed to the house and guess what? They have a few house's for rent...

Todd

Not incorperated, sole praprieter . Like I said and no one touched on the fact that I don't really need a lone and It will be verry temporary Untill I increase my buis equity line, sell equipment thats being replaced which will all go twords paying off the loan. I have been in buis for going on 9 years. I had to start out buying equipment by withdrawing from my 401 k because no banks or lenders would talk to some one unemployed ,even with excelent credit, who wants to start a buisness :Banghead. They told me then , you should never withdraw from your 401 k because of the penalties and taxes you will pay but I did and don't regret it at all. You have to do what you have to do and the money was well invested and I am very successfull today because of it. Thanks for you advice and will keep you in mind.

[Steve Frazier]

Interest paid on any loan is tax deductible, whether it be on a business loan, home equity or manufacturer loan. Leasing allows you to take the full amount of the payment as a deduction, not just the interest, you might want to contact Finance Guy about that and check with your accountant.

I still wouldn't put my house at risk for the business, if you've done as well as you say, you should have no problem qualifying for a short term business loan if that's what you want.

[Construct'O]

I agree with you Steve,why even think of taking the risk.Just like stated above,health, accident, or all the other things mention is always possible.These are things out of your control !!!!!!!!

I too think that you could easly get a short term loan any where if you have the money to back it already.Plus been in business for 9 years,that is a history record there in it's own,unless there is downsides that would show different story?

Unless there is more to the story then your telling ,i can't see why you would even consider the house thing.Not worth it to me and there has been a time i was wonder how to make things work.

I once even considered the credit card route,but then common sense kicked in and i'm glad it did.Things worked out,but took a while.

Good luck what ever you decide.:usa

[BIGDAN315]

Well it was just quick and verry temporary. no searches ,proof of income etc. etc. I will pay it off in probably a month with some thing else, thats all. But thanks for all your help...(:

[Lashlander]

I've been reading this with interest and can't figure out why you asked the question?

[Eric]

I like Dave Ramsey also. You never have to worry about losing anything if it's paid for! I don't know much about how write off's work except this... If my house were paid for ( ALMOST!!) then I don't lose anything right now.. Standard deduction got me more money than itemizing. So if I could ditch the $800 a month payment I would save $9,600 a year. Should we lose our nice standard deduction say on or around November of this year :rolleyes: it might prove better to itemize.
A business owner may see it way differant, I'm just an employee!! As far as leasing or renting equipment, how much can be written off I don't know.

[Kgmz]

What are you thinking of buying?

Why don't you just get it financed through the manufacturer.

We bought a new CAT D3G last year and we could have paid cash, but when they offered 0% for 3 years, why not. This way my money is still making money. And no we didn't pay more because it was financed, the price we negotiated was based on paying cash, and then he mentioned the 0%.

[rino1494]

If you have been in business for 9 nine years, then you should have enough equity to acquire a loan. Why don't you get a line of credit ??

[Finance Guy]

People often ask me how they can build their "business credit". I am amazed how many people are concerned about their personal credit and they should be!! If you have a business then let's build your business credit. This will help when you bid jobs, qualify for financing, I know it betters every aspect of your business profile. HOW? The next time you need financing for equipment please talk to me about commercial financing.

BTW... I get start up businesses financed all the time. I can structure very short term programs as well, seasonal programs...

Keep your hard earned money in the bank and use the big tax benefits of a commercial finance program. I have plenty of information I can email you.

Thanks.

Todd

[BIGDAN315]

If you have been in business for 9 nine years, then you should have enough equity to acquire a loan. Why don't you get a line of credit ??

As I mentioned before that is what I intend to do as soon as last years income tax has been completed. I had a better year last year than before and sisnce your gross is what the amount they will loan you is based on.... so there fore I will get a bigger line of credit.The home equity line is just TEMPORARY because I want to buy the truck now.

[BIGDAN315]

People often ask me how they can build their "business credit". I am amazed how many people are concerned about their personal credit and they should be!! If you have a business then let's build your business credit. This will help when you bid jobs, qualify for financing, I know it betters every aspect of your business profile. HOW? The next time you need financing for equipment please talk to me about commercial financing.

BTW... I get start up businesses financed all the time. I can structure very short term programs as well, seasonal programs...

Keep your hard earned money in the bank and use the big tax benefits of a commercial finance program. I have plenty of information I can email you.

Thanks.

Todd

I believe I have only 1 credit score and it is 780. Can a person have 2 credit scores ? For exsample one personal and one for his buisness? I am a sole prapriater and not incorperated. I have many vendors I do buisness with and pay all my bills on time with them. Is that what you mean buy buis. credit?

[Finance Guy]

As far as personal credit there are three bureaus, Equifax, Experian and Transunion. Most likely your score varies from one to the other. 780 is fantastic!

Business wise there is Lexis Nexis and Dun & Bradstreet. This gives us a business credit rating. One is known as "Paydex" the other gives us information to payment history.

Vendors are what we call "trades" and we rate that as well, trades, usually are 30 day terms, give us a rating on how you pay your bill on time.

[Construct'O]

I use to get papers from Dun + Bradstreet,but it has been years since i have gotten a rating from them.I have been in busniess for going on 33 years this year.

So why don't i get anything from them anymore.Do you have to ask for a report now?Just wondering.I was thinking at one time you needed one to bid work,but that has been a while ago.:beatsme:usa

[Orchard Ex]

Do you even get a "Business Credit Rating" if you have a Sole Proprietor business structure? I thought that it all gets mixed together. As a SP your house is at risk already if anything happens. Have you thought about really separating the business from personal by at least making it an LLC? (assuming that LLC's are available in your state)

[BIGDAN315]

Do you even get a "Business Credit Rating" if you have a Sole Proprietor business structure? I thought that it all gets mixed together. As a SP your house is at risk already if anything happens. Have you thought about really separating the business from personal by at least making it an LLC? (assuming that LLC's are available in your state)

Not sure on how you go about it but You might be right. I will look into it. Thanks

[Finance Guy]

We also can utilize an Experian Business Report to gather information.

Yes, you can have a business credit rating as a Sole Prop.

A SP does leave yourself open as an individual as far as liability if something were to happen. Incorporating or LLC provides a separation that can save you in the event of something.

As an individual I believe you have to request info from D&B.