For small business owners looking to expand, grow or meet their financial needs, a home loan may be the right option, leveraging the extra equity in your residential property to fund your business. There are a variety of different types of loans available on the market, from banks and other lending institutions, but knowing which one is right for you can be complicated.
While this article should not be taken as financial advice and all information is general in nature, we’ll introduce you to some of the core concepts that are important to understand when considering which are the best home loans for small business owners.
Business Home Loans – the options
Line of Credit Home Loan
A line of credit home loan functions in a similar way to other lines of credit. This revolving line of credit can be used for a variety of different reasons such as purchasing stock, refinancing an existing loan or funding working capital.
Variable Rate Home Loan
Variable interest rates fluctuate and change based on market conditions, most influentially the interest rate set by the Reserve Bank of Australia. For those businesses looking for a home loan with increased flexibility, a variable rate home loan could be the right move.
This type of loan has an interest rate that can fluctuate based on market conditions, which can be beneficial for small business owners who want more flexibility in their loan repayment terms.
Fixed Rate Home Loan
Unlike a variable interest rate, fixed interest rates do not change. Whether for the life of the loan or for a set period of time, your loan agreement will outline both what the fixed interest rate is and also for how long it will remain fixed. For small business owners who prefer to have predictable and set repayments each month this can be the better option.
Combination Home Loan
Combination home loans have advantages and disadvantages but are designed to allow you split your home loan into two sections, one with a fixed interest rate and the other that is variable.
A combination loan allows you to split your loan between a fixed and variable rate, providing stability and flexibility in one loan.
Offset Account Home Loan
A home loan with an offset account allows small business owners to reduce the amount of interest that is payable on the loan by linking another account, such as a savings account, to the loan itself.
Home Loan Redraw Facility
A redraw facility works in the same way as an offset account in reducing the amount upon which interest is charged but it also allows you to withdraw money that you’ve otherwise considered contributed to the home loan. Of course, this is only funds that are above the minimum required payment to the home loan.
What to Consider When Finding the Best Home Loan
There are a variety of different factors that should be carefully considered when you’re taking out a home loan or thinking of applying for one.
Ensure you speak to an experienced and certified financial advisor or mortgage broker who can help provide expert guidance as to the different options available and make a tailored recommendation about which option is the best for you and your business.
1. Affordability
Aside from being able to afford the monthly repayments, there are other associated costs, such as insurance, that need to be taken into account. Considering the impact that these costs will have on your business’s finance is crucial to avoid applying for a subpar home loan.
2. Interest Rates
Interest rates, whether fixed or variable, differ depending on market conditions as well as the lending institution. Finding the right interest rate and associated fees of a home loan depends a lot on your situation, your access to finance and your needs. It is important to think not just about the present moment, especially with variable interest rates, but the possibility and probability of interest rate changing one way or the other in the future.
3. Loan Term
Loan terms do vary, especially with home loans. The length of the life of the loan will greatly impact the amount of total interest that will need to be paid as well as the size of the regular repayments. Knowing what is right for you and your business isn’t always easy, so it’s best to get custom advice.
4. Repayment Flexibility
If you’d like more flexibility in the way you make repayments, it can be important to consider home loans with an accompanying redraw facility. Some home loans even offer extra flexibility with repayments as part of their terms. But you will need to check the particulars of the loan contract you are presented with.
5. Security
Secured home loans, while offering lower interest rates than unsecured loans, require collateral such as property or other assets. In the event that you are not able to make your repayments or default on your loan, the lender will repossess the collateral in order to account for the lost funding.
6. Tax Implications
The best home loans for small business owners will have favourable tax implications, such as increased deductibility. It’s important to ask your mortgage broker or financial advisor about the relevant tax implications of any home loan you are considering.
7. The Future Business Needs
Small businesses can rapidly change and evolve over time. It’s important to consider your future business goals, plans and needs when thinking about a home loan and calculating how that may positively or negatively affect your ability to repay the loan in the future.
Flexible business and home loans start with ScotPac
For expert advice and assistance in finding the best home loans for small business owners, there’s no better team to turn to than ScotPac. The sheer breadth of our experience is only matched by the immense depth of our capability.
We’ve helped many small companies around Australia access the working capital and property loans they need to fuel their business’s growth. And you don’t have to take our word for it! Check out our online Google reviews, case studies and testimonials from past clients.