Importance of Shared Equity Products
Shared equity products (SEPs) offer homeowners an innovative way to access their home’s equity without taking on additional debt. With total household debt in the United States now exceeding $17 trillion, traditional lending – such as home equity loans and home equity lines of credit (HELOC) – only increase overall debt burden. Conversely, SEPs are based on equity, allowing homeowners to use the cash to pay down existing debt, such as medical expenses and outstanding credit card payments. Additionally, homeowners can use the cash to support outside business ventures. For the millions of Americans who are small business owners, these products provide a critical alternative financing option that supports entrepreneurship and economic growth while maintaining financial stability.
How SEPs Help Everyday Americans Fund Businesses
A recent economic report conducted by the National Small Business Association (NSBA) stated that in the United States, there are 70 million people who work for or run a small business, with small businesses creating two-thirds of all net new jobs. Despite their importance to the economy, many small business owners struggle to access adequate financing, with 40% reporting they could not obtain the capital they needed (NSBA).
Paul, a Virginia homeowner, business owner, and real estate agent, found himself unable to qualify for traditional loans due to non-traditional income sources. He was impressed with Hometap’s unique evaluation model that was suited perfectly for his situation. Paul, who was previously a mortgage professional, opined that “the process was very easy. The communication was outstanding from our Investment Manager… every step of the way, [they] kept us in the loop.” Paul used his SEP proceeds to consolidate his debt and secure extra capital to jumpstart his business.
The financing gap has forced many small business owners to turn to high-interest alternatives, with 35% using credit cards for financing within the last 12 months to meet their capital needs (NSBA).
Jeff, a Massachusetts homeowner, entrepreneur, and Chief Financial Officer of Qeepsake, needed to access his home equity to pay off accumulated debts from building his business. His credit card debt caused his credit score to decline, so he was scrambling to figure out a solution that would not require him to go into more debt. Jeff chose to use a SEP investor rather than a HELOC or personal loan to avoid additional monthly payments. The flexibility of SEPs gave Jeff the opportunity to get back on his feet while ensuring his business remained profitable.
Axel, a Massachusetts homeowner, used his equity to buy a few cars in Guatemala to start his own taxi business. The business generated an extra $600 per month for him, which gave him the financial freedom to pay off his debt and have money to spare for his savings. He credits Point for saving his financial situation.
Small business owners are particularly vulnerable during economic downturns, with limited reserves and fewer financing options compared to larger enterprises.
Steve, a California homeowner facing economic uncertainty due to the COVID-19 pandemic, found it increasingly difficult to get a loan to keep his business afloat. He had to briefly shut his business down and dip into his savings before he had the idea to tap into his home equity. Frustrated by the inability to access his equity, he found Unlock. Steve used Unlock’s proceeds to successfully pay off his debt, restart his business, and increase his credit score. He emphasized that it was “such an easy process” that lifted a huge weight off his shoulders.
Conclusion
SEPs provide a vital financial solution in today’s challenging economic environment. With no monthly payments, no interest, and no absolute obligation to repay, SEPs empower homeowners to access their equity for critical needs like business funding.
The NSBA emphasized that “Policymakers should seek policy that bolsters small-business access to capital if they are looking for economic and job growth from America’s smallest businesses.” SEPs are precisely the capital access solution that policymakers should support. Through transparent terms and responsible practices, CHEP is helping create a financial ecosystem where both homeownership and entrepreneurship can flourish together, addressing America’s small business funding gap with innovative solutions.
For more information, read our FAQ guide or contact info@homeequitypartnership.org