Adam
New Contributor
Not surprising, the secondary market HATES 2nd liens right now. No one is buying them.
We never use residential RE backed lines of credit for operating. Issues like this can shut you down.
Now, IF I was going to use a HELOC for my business and IF my business was going to be jeopordized by its termination, I would fully extend the line immediately. I would then put the cash into a liquid interest bearing investment account (ING Acct) and make the monthly payment on the HELOC. If you are paying P+1 (8.75%) on your HELOC, you can easily find an ING acct paying 5%. Now, remember, your HELOC is a simple interest account and your ING account is compound, so your effective rate is less than the 375 basis point spread. And, its even less if the line is on your primary residence and you can benefit from the tax advantage AND you can pay yourself interest as you will be loaning money to your company.
Is 375 bps a high cost to have funds available? Absolutely not, especially when it allows you to remain liquid and keep your business alive.
We never use residential RE backed lines of credit for operating. Issues like this can shut you down.
Now, IF I was going to use a HELOC for my business and IF my business was going to be jeopordized by its termination, I would fully extend the line immediately. I would then put the cash into a liquid interest bearing investment account (ING Acct) and make the monthly payment on the HELOC. If you are paying P+1 (8.75%) on your HELOC, you can easily find an ING acct paying 5%. Now, remember, your HELOC is a simple interest account and your ING account is compound, so your effective rate is less than the 375 basis point spread. And, its even less if the line is on your primary residence and you can benefit from the tax advantage AND you can pay yourself interest as you will be loaning money to your company.
Is 375 bps a high cost to have funds available? Absolutely not, especially when it allows you to remain liquid and keep your business alive.