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Business isn’t keeping the pace. Mark Martin still thought he had his future sewn up with home equity line of credit.
Mark, says "I was counting on it as a safety net."
Mark runs the embroidery business “Sewlutions.” Most of his business comes from Starbucks franchises. There are fewer orders. He was counting on his equity line to make-up the difference.
He says he always pays his bills on time and has good credit. He was shocked when he received a letter saying his home equity line was suspended.
"Never occurred to me that was even an option,” says Mark. "I feel like the banks are getting are getting billions of dollars in tarp funds to supposedly make credit actually available."
Losing an equity line of credit or having it reduced is happening to a lot of people. Dr. Boisjoly [Dean of the College of Business and Management at Lynn University] stresses home equity lines are based on the value of a home when the credit is given. He cautions about reapplying. Your home will likely be reappraised for much less and that could have the bank saying pay-up on your mortgage.
A few things to note in this article. The bubble philosophy that home equity is your savings and safety net that one should have access to. Another bubble aspect of using home equity as a source of funds for business. Because of the ease of obtaining funds small business owners often turned toward their houses to fund ventures. We warned about the problems this could cause throughout the country last April here. Remember that during the bubble loans were commonly based on what the asset was worth not someones ability to pay.
The last thing to note is that this owner is still in bubble mentality. While he is aware of the tarp funds he is not aware of the massive closing down of HELOCs that have been going on during the last year throughout the entire country - see here, here, and here.