Home Equity Line of Credit

Home equity lines of credit (HELOC) offer more flexibility than refinancing or adding a second mortgage, which makes them a good option for potential franchisees. Money can be withdrawn from the line of credit on an as-needed basis, rather than all at once. Since the loan is secured by real estate, interest payments are often tax deductible (check with a tax advisor for details).

Interest is charged only on the amount in use. This is helpful for new franchisees because they will not have to pay interest on the money until they actually need it. Interest rates vary with lines of credit; these rates are often lower than the rates offered with a second mortgage, but the lack of a fixed rate means there is always the chance of a rate increase. Before selecting a HELOC program, ask about the periodic and lifetime caps, which dictate the maximum interest rate increase at any one time and for the duration of the credit line, respectively.

A HELOC is more similar to a credit card than to a traditional mortgage. Borrowers can use as much or as little of the credit line as they want; in many cases, the credit available increases with each repayment made, meaning borrowers can borrow money again and again. This makes it convenient for a franchisee to access additional funds at a later date. In addition, lines of credit are relatively inexpensive compared to home refinancing or second mortgages.