Homeowners

Launching a New Business? You May Want to Tap Into Your Home Equity to Cover Startup Costs

July 8, 2025

Going into business for yourself is exciting. You get to be your own boss, pursue your passion, and, best of all, take all the vacation days you want.

But starting a company, whether physical or digital, also requires money.

Your budget may need to accommodate business registration fees and licenses, equipment costs, building and hosting a website, advertising, rent for a physical space, and more. Depending on the size of the startup, you may need to pay for employee salaries and benefits.

To finance these startup costs, many small business owners turn to traditional business loans or credit cards. But homeowners launching a new company have another option: a home equity loan.

“Home equity loans are typically easier to get approved for, and it’s faster to take out funds than a business loan for a startup,” said Amber Ernst, a sales manager at New American Funding, in Bettendorf, Iowa.

Below, we’ll look at the various types of loans you may be able to use to fund your new endeavor.

Consider a second mortgage if you need startup funds

Two business owners meeting with a loan officer.

A straightforward home equity loan, also called a second mortgage, allows you to borrow a lump sum of money by leveraging the equity you’ve built in your home. This is how much of the home you own outright versus what your lender owns.

To qualify, you typically need at least 15% to 20% equity in your property.

How much you can borrow depends on your home’s current value, your remaining mortgage balance, and the loan-to-value ratio set by your lender. If you made a large down payment, paid off a good portion of your mortgage, or your home has appreciated in recent years, you may have access to significant cash.

Pros of using a second mortgage to start a new business

You may receive a lump sum of cash to fund upfront expenses
You may receive a lower mortgage interest rate compared to other types of loans
You have the potential to borrow a significant amount
It may be easier to secure a second mortgage than a small business loan

Cons of using a second mortgage to start a new business

Your home serves as collateral. This means if you’re unable to make payments on the loan, you might lose the home.
You’re signing up for a long-term repayment commitment
You will generally have to pay closing costs on the loan

Go with a HELOC if you’ll have ongoing costs

A woman going through a checklist. A home equity line of credit (HELOC) is similar to a traditional home equity loan, with two key differences:

It’s a line of credit, so you can borrow what you need when you need it, during the “draw period” (often five to 10 years).
The interest rate is typically variable, not fixed.

A HELOC makes more sense if you’ll need to periodically withdraw cash to cover ongoing costs over the first few years of your business.

Pros of using a HELOC to start a new business

You have the ability to withdraw funds for several years as needed
You may have a lower variable interest rate compared to other types of loans
You have the potential to borrow a significant amount over time
It may be easier to get a HELOC than a small business loan

Cons of using a HELOC to start a new business

Your home serves as collateral
You have a long-term repayment commitment
You will generally need to pay closing costs

Consider a cash-out refinance to fund a new business

A couple meeting with a loan officer in an office.

If you bought your home when interest rates were high, and rates are lower now, consider a cash-out refinance instead.

With a cash-out refi, you refinance your mortgage with a new rate. You also borrow more than what you still owe on your home—and pocket the extra cash. This money can be used for just about anything, including small business startup costs.

That said, you may not be able to borrow as much with a cash-out refinance as you could potentially with a second mortgage or HELOC.

Pros of using a cash-out refinance to start a new business

You may be able to secure a lump sum of cash to fund upfront expenses
You don’t have to worry about a second loan payment—just a revised mortgage payment
You have the potential to borrow a significant amount
You may be able to secure a lower mortgage rate if rates have fallen

Cons of using a cash-out refinance to start a new business

Your home serves as collateral
You typically extend the length of your mortgage to pay off the addition money you are borrowing
You will generally need to pay closing costs

No home equity? Try a traditional business loan

Owning a home is not a requirement to owning a business. But being a homeowner may open up new streams of funding if you would like to tap into your equity.

Entrepreneurs who don’t own property (or don’t yet have enough home equity) can also apply for business loans, either through a lender or through the U.S. Small Business Administration (SBA) loan program.

The loan types run the gamut, from secured to unsecured and lump-sum to lines of credit.

Pros of using a business loan to start a new business

You may be able to secure competitive interest rates
Your home won’t be used as collateral for the loan

Cons of using a business loan to start a new business

It may be difficult to qualify for these loans
You may experience a lengthy approval process
The loans may require collateral or down payment

If costs are low enough, put it on plastic

A person in an apron on the phone looking at paperwork. Credit cards have notoriously high interest rates (average 22.8% APR, according to the Consumer Financial Protection Bureau). So, exercise caution before financing your startup with plastic.

That said, if you have no other options, and costs are low enough that you could pay off the card in a few months, swiping your card for startup expenses may be the easiest path forward.

You could theoretically use your personal card. But you can also open a card in your business’s name.

Pros of using a credit card to start a new business