Plan Your Financial Life (National Academy Foundation)

Chapter Seventeen: Home Equity Loan Provides Expansion Money

The travel agency that Carol and Daniel Thalimer own has grown so fast over the last five years that they have barely been able to keep up. They specialize in overseas vacation packages, which have proven to be very popular. Recently, Carol and Daniel decided to expand the business and turned to their bank for assistance. However, they found bankers unwilling to provide them with a small business loan. Daniel suggested they borrow against their home. The four-bedroom home in Roswell, Georgia, an upscale suburb north of Atlanta, had appreciated over the years and was worth $136,000. Their bankers did not hesitate to advance the Thalimers a home-equity loan of $45,000.

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Why was the bank so willing to loan them the money as a home equity loan instead of a small business loan? Was this a smart way for the Thalimars to borrow money for their business? What other options did the Thalimars have?