Self-Employed Individuals and Small Business Owners have the responsibility of ensuring that there is enough working capital available for the operations of the business. Many startups or expanding businesses find that they need an ever growing supply. The preferred method is to have enough corporate credit to maintain operations. However, it is often necessary to tap personal credit lines because they are already established or offer better rates and terms. One method that has been utilized recently is the use of a HELOC (Home Equity Line of Credit). The problem is that with the turmoil in the housing and financial markets lenders such as Countrywide are freezing credit lines for borrowers who have never missed a payment. Declining home values in certain markets have made these loans more risky for the banks. The sad thing is that they close the easy ones first (the ones that don’t have any balances).
So what does this mean for you? If you have a HELOC that you depend on for your business it may be a good idea to pull from it while the line is still active. But before you do that you should confirm that they wouldn’t have the ability to request full payment unless you go into default. Another thing to look into is an actual business line of credit. The rates will likely be above prime. But the fact that most of these lines aren’t tied to the value of any personal collateral will enable you to still have the fuel to operate your business even if the economy slows down.
