Should You Use a Reverse Mortgage to Finance a Business?

Many small business owners are having a tough time getting approved for credit in this tough economy. Banks have tightened lending standards, making it difficult to get all types of loans. For some business owners over 62 their best chance of obtaining financing may be a reverse mortgage, but doing so does involve some risk, according to Entrepreneur magazine. Here are some things to consider before using a reverse mortgage loan to finance a business.

Reverse Mortgages and Home Equity

Converting home equity to cash can give you access to funds to start and grow a business. The money can be received as a lump sum or a line of credit. Credit lines are useful if you just want a backup source of cash flow but don’t necessarily need a huge sum upfront. The money also doesn’t have to be paid back to the mortgage lender until you leave your home or die. However, reverse mortgages tend to have more fees than conventional loans, and interest rates are usually variable. Have a reverse mortgage counselor crunch the numbers to determine the real cost of getting a reverse mortgage. You can compare reverse mortgage quotes here.

Leaving an Inheritance

If one of your financial goals is to leave an inheritance for your kids, a reverse mortgage may not be the best choice. Cashing out home equity can cut down on the amount of inheritance you leave to your kids, unless you are certain of leaving them a successful business instead. They also end up responsible for paying off the loan if they really want to keep the house after your die.

Ultimately, you may find that it makes more sense not to use a reverse mortgage to finance your business. There may be other sources of funding that work better, such as loans from family or friends, your own savings, or even loans through social lending networks.

This entry was posted on Monday, October 12th, 2009 at 4:25 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.