Small Business Administration Denies Home Equity Line of Credit for Equity Injections

The Small Business Administration (SBA) is no longer accepting your home equity as a way to provide the down payment (equity injection) for your small business loan. If you are considering obtaining a loan from the SBA to start up your new small business, one thing you will have to have is a down payment for that business. As you think through the options for funding, things can get complicated. It's difficult to know what your alternatives are, not to mention what you qualify for, when you are looking for the necessary funds for an equity injection to satisfy the Small Business Administration's (SBA) requirements. An equity injection is the money a loan applicant must provide as a condition of receiving an SBA loan. Frequent changes in regulations makes keeping up on requirements seem like a full time job. Fortunately, the associates at DRDA CPA, P.C. are experts in this area. They understand the details of equity injections and can help you obtain the small business start-up funds you need.

For years, you could count on using your home equity line of credit (HELOC) as a source of your equity injection. Unfortunately, as of August 1, 2008, this is no longer an option. The SBA used to consider your HELOC as equity, but with the change to their Standard Operation Procedures on August 1, this is no longer the case. In fact, not only is your home equity no longer considered equity, it is now considered debt- just like the outstanding balance on your mortgage. The only way a perspective business owner can still access their HELOC as a funding source for their down payment on a small business loan, is if someone within the home that can service the loan outside of the scope of the business they are purchasing. Most often, however, when people move into the small business or home business arena, borrowers are both working in the new business, so this essentially removes the HELOC as a source of equity injection in an SBA loan.

You don't need to give up your dream of having your own business just because the SBA has changed the rules. In fact, you may have all the funding you need right in your 401(k) or other retirement plan. You can roll your retirement plan over into a BORSA (Business Owner's Retirement Savings Account) and then use those funds to fund your small business down payment, satisfying the SBA's requirement.

If you are considering an SBA loan as a source of financing for your new small business and need further information about equity injections, contact the certified public accountants at DRDA, P.C. today to find out how they can help you understand all that goes into the funding of an SBA loan. They are specialists in creating and managing BORSA plans to make small business dreams come true for people across the country.

You can begin to get the answers you need about financing a BORSA plan and starting your own business right now by calling 281-954-6040 to speak to any of the financial consultants at DRDA, PC. Call now and start making your dreams come true today.