The mortgage alone is already eating a big chunk out of your income, not to mention the other expenses that you have to pay every month. Is it even possible to start a business at this point? The answer is yes, but you might have to go about it a little differently.
When you already have a solid business plan but are struggling with the financial part, here are some solutions you can consider:
1. Take out a home equity loan
A home equity loan allows you to borrow against the equity of your house. It is also known as a second mortgage. When you get a home equity loan, the money that you receive can be used to consolidate debt or fund significant expenses, including starting a business.
Taking out a home equity loan is only recommended for responsible borrowers. If you borrow the money to start a business, your business plan needs to be a hundred percent solid, and you have to be fully confident in your idea. While a home equity loan can have low interest rates and tax deductions, it can also get you deeper into debt.
2. Build your credit
Most small business lenders use borrowers’ credit to determine their creditworthiness. Hence, when your credit score is low or teetering below what is considered ‘average,’ you might find it hard to secure a small business loan. Even if your business plan is superb, a lender will have little confidence with you if your credit score is not favorable.
For this reason, building your credit is the best first step in starting a business. It increases your chance of securing a small business loan and negotiate better loan terms at the same time. To build your credit score fast, here are some strategies that you can try.
- Pay your bills on time
- Keep credit card balances low
- Avoid applying for new loans
- Keep unused credit cards open
- Make it a habit to check your credit report
3. Lower your mortgage payment
Is your mortgage leaving you no room to save for a business? If this is the case, consider lowering your mortgage through the following options:
- Extend your loan life. While extending your loan life will have you paying more interest in the long run, it is the easiest way to decrease your monthly mortgage payment. The extra money you have every month can then go to your business capital.
- Rent out. If you have a spare bedroom, basement, or addition in the house, consider renting it out as a living space or storage to help with the mortgage payment.
- Negotiate with your lender. It won’t hurt to ask your lender for a lower interest rate, especially if you have been paying a fixed interest over a long time. If you are a good payer and have a strong credit score, you have a better chance of getting a lower interest rate.
- Refinance your mortgage. Another option is to refinance your mortgage. When you refinance your mortgage, you can significantly decrease your mortgage payments, especially if the rates are low.
4. Run your business from home
If it applies to the type of business you’re planning, start your business right at home. Doing this will save you tons of money in overhead costs, as well as give you time to figure out your expenses while lifting your business off the ground.
Moreover, starting your business from home requires less capital than renting a separate property. So even if you don’t have much money to work with, you can start building your business right away.
5. Reduce other expenses
If the mortgage is non-negotiable, and you don’t want to refinance nor take out a home equity loan, try reducing your other expenses instead.
Reducing your other expenses can help you build capital for your business. While this route will take more time, it is the least risky out of all the options mentioned. There are many ways you can decrease your expenses and save more money, such as:
- Consolidate your debt for lower interest rates
- Prioritize cooking and eating at home
- Reduce utility use
- Eliminate vices
- Decrease vehicle use
- Limit phone and Internet services
- Cancel memberships that you rarely use
- Find low-cost or free entertainment
- Avoid shopping sprees
When people want to start a business, the first thing they think about is capital. Usually, they say, “I have so many other expenses, there’s no way I can save money for capital.” That is not entirely true. Even when you have a considerable mortgage every month, there are ways to finance your business.