Home equity loans… for your business?

Almost every entrepreneur or small to mid-sized business owner needs more of the same thing: cash. Cash for growth, cash for bills and cash for security – cash is the fuel that allows a young business to survive.

Home equity loans are often an attractive option for business owners who need capital to keep their dream alive. The U.S. Small Business Administration, for example, requires an “equity injection” from a business owner before guaranteeing a small business loan – in other words, proof that the owner has a real stake in the game. For loans above $350,000, the business owner can use a home equity loan as that injection.

Business owners may also see home equity loans as an alternative to the rigorous, time-consuming business loan process. “Banks (require) cash-flow projections, detailed financial statements, bank statements, a personal and business credit history and three years of tax returns (for business loans),” Steve Nicastro of NerdWallet.com writes. Home equity loans, on the other hand, are generally less complicated to obtain.

Northwest offers fixed rate home equity loans and ChoiceLine home equity line of credit (HELOC) loans.

“If you are confident in your ability to repay the loan,” Nicastro writes, “using a home equity loan or HELOC comes with numerous benefits that can help you grow your business.”

  • A fixed rate loan provides fixed, competitive rates, flexible terms and a monthly payment schedule that fits the borrower’s budget.
  • The ChoiceLine HELOC gives borrowers the choice of allowing the balance on their home equity line of credit to vary with interest rates nationwide or to lock in the interest rate at any time. Borrowers are given special personal checks that can be used to draw money from their new line of credit at any time.

Nicastro adds that entrepreneurs in “service industries like consulting, legal services, healthcare and social services are best suited for these loans” because “they are selling a service, rather than products that consumers may not like.”

Restaurant and retail owners, Nicastro notes, should steer clear of home equity loans due to the unpredictable nature of their industries.

What’s the downside to home equity loans for business purposes? Risk. If your business struggles or faces cash flow issues, your home may be on the line. A HELOC can affect both your personal credit score as well as the credit score of your small business.

Using home equity to launch a business also means that the equity won’t be there if the business struggles – that safety net is gone.

Entrepreneurs and small business owners should consider their business loan options before tapping their home’s equity. Northwest also offers a full range of commercial lending products and services with competitive, low rates, fast turnaround based on local decisions and creative financing options.


If your business needs capital, your first meeting should be with a Northwest commercial lender to discuss all of your financial options. Click here to get started.