<= o:p>
If =
you own
buildings, land or equipment as part of your small business, you can turn t=
hat
equity into cash by using it as collateral for a loan. But don’t start
making plans for those extra funds just yet. Mortgaging your business
possessions is a step that should be taken cautiously, and with a full
understanding of your responsibilities to the bank. Unless you have a solid
business position, offering real estate as collateral may result in losing =
far
more than you gain.
Rea=
l estate
loans on commercial or industrial property are usually available for up to =
75
percent of the property’s appraised value. Repayment, usually on a
monthly basis, is amortized over 10 to 25 years. Shorter payment periods or
balloon payments may be available. It may also be possible to obtain a seco=
nd
mortgage on your remaining equity in the property. However, the interest ra=
tes
are typically higher than those for the first mortgage.
If =
the
value of your property has increased since it was first financed, it may be
possible to refinance by taking out a new mortgage. This is a good option to
consider, particularly given the record low interest rates available. Still=
, it
is best to refinance your mortgage only when absolutely necessary—if =
the
cash is needed for business expansion, for example.
It =
may be
wise to borrow on equipment to finance ongoing operations or expansion.
Generally, lenders will finance 60 percent to 80 percent of the value of the
purchase price of capital goods. The balance represents the borrower’s
down payment on a new purchase, or the amount of equity the firm retains in=
its
own equipment. These loans are generally repaid in installments over one to
five years.
If =
you
would like to discuss this topic or business planning, business growth
strategies or a specific business issue, contact SCORE® “Counselors to
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