Can You Use Your House as Collateral to Buy a Business?

The short answer is: Yes, you can use your house as collateral to buy a business.

But is that the best idea for you?

You can use your house as collateral to buy a business, also known as a “homeowner business loan”. But if your business defaults on the loan the bank can repossess your home to recover the outstanding balance. If the bank seized your house, this would result in you and your family becoming homeless.

There’s actually a safer way to buy a business where you don’t have to put your house at risk and use a homeowner business loan.

And that’s a much safer choice for you and your family.

I know you’re excited to start your business journey, and I totally get that. You want to become your own boss and work towards financial freedom.

But remember, your home is where you and your family live.

You’ve worked hard to get it, and it’s a place of safety for you and your loved ones.

Is Your Home at Risk if You Use is as Collateral for a Business Loan?

If you use your home as collateral for a business loan to buy a business, this will put your home at risk if you are unable to repay the loan in full. This is because the lender can seize your house and remove you and your family from your home, if your business defaults on the loan.

So, the question is; would you really want to put all of that in danger?

Imagine if you lost your home.

How do you think that would feel?

If that happened, it would feel like taking a step backwards, instead of moving forward towards your goals.

Why is using your house as collateral for a business loan a bad ideas?

Before I explain a better way to buy a business without risking your house, let me explain why using your house as collateral is a bad idea.

First, do you fully understand what it means to use your house as collateral?

This is important because when you use your house as collateral, you’re promising that if the business doesn’t work out, you could lose your home.

Now, let’s pretend everything goes perfectly.

The business you buy is successful.

You pay back the loan, the bank is happy, and your home stays safe.

That’s the best case scenario, right?

But while it’s good to hope for the best, it’s also smart to plan for the worst.

When you buy a business, there’s always a chance that it might not work out.

Everyone who buys a business feels a little nervous about failure. I know I did when I bought my first business!

To avoid the worst-case scenario, it’s better to make a plan that protects you in case things go wrong.

For example, just like we buy insurance for our homes or cars, you can set up a plan to protect yourself if the business fails.

In my course on how to buy a business, I teach how to set up a smart plan that will protect you and your family if the business you buy doesn’t succeed.

What happens if the business you buy can’t repay the collateralise loan?

Now, what happens if the business you buy does go badly?

It happens sometimes—sometimes things just don’t work out.

When I bought my first business, things didn’t go as planned. After a few years of running my business things started to go wrong, and as a result I lost a lot of money to keep the business going.

It wasn’t easy.

If I had used my house as collateral, I could have lost my home too.

That would have been a huge problem, not just for me, but for my family too.

What are the consequences of losing your home to bank seizure?

Losing your home if the bank seized it would mean you could lose the place where you live. And that’s something you want to avoid at all costs.

Maslow’s Hierarchy of Needs

Have you ever heard of “Maslow’s Hierarchy of Needs”? It’s a way of thinking about what we need to survive.

At the bottom of the above pyramid, you have your basic needs like food, water, shelter (like your house), and sleep.

These are the most important things for staying alive.

If you lost your home, you wouldn’t be able to sleep properly.

Finding food and water would become a problem too.

Your family’s safety could be at risk.

It’s easy to talk about this stuff when it’s just a thought in your head, but if you were in a situation where you were about to lose your home, it would be really scary.

May I suggest, if you haven’t already done so, you watch the film “The Pursuit of Happyness” which stars Will Smith as Chris Gardner.

The film is based on a true story.

And (Spoiler Alert), whilst this film does have a happy ending.

When you watch the film, put yourself in the character’s shoes, and consider what it would be like to be on the streets.

Imagine being homeless and having nowhere to live.

It’s a scary thought, right?

And it’s something you can avoid by making smart choices now.

I’m not saying all this to scare you, but to help you make the right decisions when it comes to buying a business.

I know how much you want to become your own boss and reach financial freedom.

But it’s important to do it the safe way.

In my course, I also teach about the types of businesses that are less likely to fail, so you can increase your chances of success.

Now, you might be thinking: “If I don’t want to use my house as collateral, how can I buy a business if I don’t have enough money saved up?”

Great question! And I’ve got an answer for you in this next video.

There are ways to finance a business without risking your home. In fact, you might not even need a big deposit at all! This is all explained in the above video.

I hope this helps you on your journey to finding a business to buy, and if you have any questions on this topic about buying a business, or on any other aspect about the process involved in buying a business, please drop a comment below.

And always remember; no question is a stupid question.

If you don’t know it, you don’t know it, and by having the answer to a question you have, might be all it takes to move to the very next step in your journey to buy a business.