Financing a Franchise with Home Equity

For many people, the equity of their home is their most valuable asset. There are three ways to harness the value of home equity and use it to finance the purchase of a franchise:
• Home Equity Loan (Refinance)
• Home Equity Line of Credit
• Second Mortgage
• Using home equity as loan collateral

By using the equity of their home, people are able to maximize the amount of money they are able to borrow. People generally borrow against the equity of their home when they need money for a big ticket item, such as college education, home improvements or paying off credit card debt. Investing in a franchise can require a significant investment of capital, and using home equity can be a good way to inexpensively raise a portion or all of that capital.

Whether consumers should use a home loan refinance, home equity line, a second mortgage or simply use their home equity as collateral on a business loan largely depends on the loan-to-value ratio of their home and personal credit score. It also depends on the various loan programs available. Refinancing and home equity lines of credit usually offer the best interest rates. However, obtaining a loan directly for the business may be part of a new franchisee's long-term plan for establishing business credit.