How to Use Equity You Have Now to Fund Your New Business

When discussing ways to fund your business, the more you delve into it, the more options you will discover.  In my last blog post I expounded on three choices that are among the most familiar when entrepreneurs first begin the thought process of garnering monetary means of making their dreams a reality.

In today’s blog I want to discuss three more ways to come up with the cash to underwrite your dream business:

  • Bond Insurance
  • Personal and Home Equity Loans
  • Aggregated Lines of Credit

Except for the first item on the above list, these may also be avenues that come to mind without too much hard thinking; but as you are considering your options, be sure you know the pluses and minuses associated with them.


Bond Insurance –

If you are in possession of bonds that have a good amount of value to them, you could possibly work with an insurance company that provides “Financial Guaranty Insurance”.  These companies are there to guarantee scheduled payments of interest and principal on bonds or securities in the event of a payment default by the issuer.  You can consider borrowing against the value of your bonds.

Your first step is to find out whether your bank accepts bonds as loan collateral.  You will also need a margin account with a brokerage firm.  In addition, it needs to be determined whether your bonds qualify.  If they do, then loan papers will need to be filled out.

The advantages of this type of funding, as with the others I reviewed in my last blog post, are:

  1. You control the decision making within your business
  2. You control your intellectual property

The “margin” on bonds is usually about 20 percent.  What this means to you is that you can borrow up to 80 percent of your bonds’ worth.  Words of caution, however…before you make any decisions about borrowing against your bonds, discuss the pros and cons with your financial advisor.


Personal & Home Equity Loans –

Other choices you can make as ways to “fund’’ your business include taking out a personal loan and borrowing against your home with a home equity loan or line of credit.  A personal loan will be considered based on your personal credit history.

If you want to go the home equity route, you have two approaches you can take.  A home equity loan is given in one lump sum, has a fixed rate of interest, and a fixed number of payments.  In contrast, a home equity line of credit (HELOC) is similar to a credit card, with interest due on the outstanding balance.  That interest rate could vary over time.

Two advantages with these considerations would be:

  1. You remain in control of your company
  2. Possible lower interest rates than traditional business loans

You may want to be cautious of the following things:

  1. Stable interest rates are needed, as well as rising home values
  2. This type of loan is not tax deductible


Aggregated Lines of Credit (Credit Cards) –

As a means of financing a new business, this is probably among the more popular sources for funding a start-up.  These are business credit cards, but with a personal guarantee.

It is also relatively easy, depending on your credit score.  Responding to credit card offers with introductory rates is one way of getting this line of credit or going through an online credit service.

The advantages here are the same as the home equity loan or home equity line of credit above:

  1. You remain in control of your company
  2. A lower interest rate than a traditional business loan

Make sure you are aware, however, that:

  1. The zero to low introductory rates only last 6-18 months, then increase to a much higher interest rate.
  2. The online credit service can have hidden fees and misrepresentations.
  3. You need to include an equal commitment to credit card debt in all partnership agreements.


We’ve now reviewed six “traditional” means of funding a start-up business.  My next blog post will target the ins and outs of three more “traditional”, yet perhaps lesser-known, methods that could get you the financial resources you need.  If the first choices didn’t float your boat, read my next blog for others that might.

Leave a Reply

Your email address will not be published. Required fields are marked *