How To Use Equity in Your House To Invest in Your Business
Last updated 01/14/2026 by
Ante MazalinEdited by
Andrew LathamSummary:
You can use the equity you have accumulated in your home to invest in your business. There are multiple ways to do this, including home equity loans, a home equity line of credit, cash-out refinancing, and a home equity investment, also known as a shared equity agreement. However, before investing, you should carefully consider your options and weigh the risks to your home.
Starting a business isn’t just about a great idea; it’s about keeping cash flowing. In fact, poor cash flow is estimated to play a role in 84% of business failures in the U.S.
To cover startup costs or manage slow periods, many business owners turn to the equity in their homes. This can unlock significant capital at lower rates, but it also comes with risks you don’t face when using traditional business loans or investor funding.
Knowing your options can help you decide whether using home equity is a smart move for your business, and which approach fits your situation best.
Is Using Home Equity to Invest in a Business a Good Idea?
Using home equity to fund a business can be powerful, but it isn’t a one-size-fits-all strategy. Whether it makes sense depends on your experience, financial stability, and risk tolerance.
Home equity may make sense if:
- You have prior business ownership or industry experience
- Your household income can comfortably cover loan payments even if the business underperforms
- You have a clear plan for how the capital will generate revenue
- You’ve already explored less risky funding options
Home equity may be a poor fit if:
- This is your first business and revenue is uncertain
- You rely on your home as your primary financial safety net
- You have limited emergency savings
- You would struggle to make payments without business income
Reality Check: Many businesses fail due to cash-flow issues, not bad ideas. When your home is on the line, cash-flow planning becomes even more critical.
What Is Home Equity and How Can It Be Used for Business?
Home equity is the difference between what you owe on your mortgage and how much the property is worth. As you pay down your mortgage, you build up your home’s equity.
For example, imagine your house is worth $750,000, and you took out a $500,000 mortgage to purchase it. So far, you’ve repaid $200,000 of that mortgage. That means you have $450,000 of equity in the property that you can leverage for financing.
Here are five ways you can take advantage of your home’s equity to invest in your business: selling your house, home equity loans, home equity lines of credit, cash-out refinances, and home equity investments.
Pro Tip
It may take longer than you expect to get equity out of your property. The exact time varies depending on the type of loan, but it will likely take four to six weeks, so plan accordingly.
Using Home Equity to Start or Grow a Business
Home equity can support a business at different stages—not just at launch. Business owners commonly use these funds to:
- Cover startup costs such as licensing, inventory, and equipment
- Buy an existing business or franchise
- Stabilize cash flow during seasonal slowdowns
- Expand operations, hire staff, or increase marketing spend
- Refinance high-interest business or personal debt
The way you plan to use the funds should influence which equity option you choose, since some products work better for one-time expenses while others support ongoing cash needs.
Sell your house
The simplest way to get equity out of your home is to sell your house. You’ll get the full value of your property all at once, which could be a good option for you if you don’t have a mortgage or if your mortgage is much lower than the current value of your home.
Of course, this method also comes with complications. You still need to live somewhere, after all, and you could easily end up spending most of the money from the sale of your old home on a mortgage for a new one. There’s also no guarantee the sale will close before you need the money.
Most importantly, selling your home means you can’t take advantage of the future increased value of your house. Therefore, a better solution may be to get equity from your home without selling it using the other alternatives outlined below.
Home Equity Loan to Start a Business
A home equity loan is often referred to as a second mortgage. A home equity loan allows you to borrow a fixed amount, secured by the equity in your home, and receive your money as a lump sum. It is repaid monthly, like a regular mortgage, and it can be worth as much as 80%–85% of your home’s equity.
Can You Use a HELOC to Start a Business?
A home equity line of credit, or HELOC, works similar to a credit card. Once approved for a HELOC, you can draw from it as a line of credit anytime during the draw period. A HELOC has a variable interest rate, which is usually based on the prime rate of the day when you draw from the line of credit.
During the draw period of a HELOC, you will only pay interest on what you’ve drawn. Once the draw period ends, the repayment period begins: you will have to repay the balance, and you will no longer be able to borrow money from the line of credit. The terms of the HELOC may require that the remaining debt be paid off immediately or over time. The lender may also reduce the amount of credit available to you during the draw period if the value of your home lowers significantly.
Pro Tip
The needs of your business will determine whether a home equity loan or a HELOC is a better option for you. For one-time expenses, you may want to consider a home equity loan. If you need a cash reserve that be quickly repaid, however, a HELOC may be best.
Using a Cash-Out Refinance to Fund a Business
Cash-out refinancing involves taking out a new mortgage for more than you still owe on your initial home loan. You pay off the first mortgage and pocket the difference. A cash-out refinance comes with a variety of fees and closing costs, so make sure to read the fine print before signing on the dotted line. Shopping around with different vendors to find a cash-out refinance option that works for you and your business.
Business Funding With No Monthly Payments (Home Equity Investments)
In a home equity investment, you are selling a share of your property to an investor. The investor then gives you cash for that share that you can use as you wish, with no monthly payments or interest rates attached.
At the end of the agreement, you must pay the investor the amount they initially loaned to you, plus their share of the increased value of your home. For example, if the investment was made in exchange for 50% of the property’s appreciation, and the property then increased in value by by $50,000, you would owe the investor $25,000 in addition to the initial investment. This also means that if your home value drops, you may not owe as much.
Home equity investments may be a good option if you want to avoid monthly payments or if you cannot obtain another type of home equity loan.
Pro Tip
The investor in a home equity investment only has a claim to their original investment and a percentage of the home’s increased value. Any amount you repay on your mortgage still goes toward your own equity.
Home Equity Loan vs HELOC vs Cash-Out Refinance for Business
| Option | Best For | Key Advantage | Main Risk |
|---|---|---|---|
| Home Equity Loan | One-time startup or purchase costs | Predictable fixed payments | Monthly payments regardless of business performance |
| HELOC | Ongoing or flexible cash needs | Only pay interest on what you use | Variable interest rates can rise |
| Cash-Out Refinance | Large funding needs + mortgage reset | Potentially lower overall mortgage rate | Restarts mortgage term and adds closing costs |
| Home Equity Investment | Owners avoiding monthly payments | No monthly loan obligation | Sharing future home appreciation |
Why should I use my home’s equity to invest in my business?
Business loans often come with restrictions, and the smaller a business, the harder it can be to get approved for a business loan.
On the other hand, cash from a home equity loan can be used however you want. You may find it’s much easier to get money for your business by leveraging the equity in your home, either through a lender or from an investor via a home equity investment.
Most lenders also see collateral in the form of property as less risky compared to an unsecured small business loan. You won’t need to show your business plans to prove your business’s viability: if you fail to repay the loan, the lender will simply seize your property.
Alternatives to Using Home Equity to Fund a Business
Home equity isn’t the only way to finance a business—and in many cases, it isn’t the safest. Depending on your goals, these alternatives may reduce risk:
- Startup business loans designed for early-stage companies
- Personal loans for business use, which don’t put your home at risk
- Investor capital or partnerships
- Equity-based home financing options with no monthly payments
For homeowners who want funding without monthly debt obligations, reviewing the pros and cons of a home equity agreement can help clarify whether this structure fits your situation.
Pros and cons of using home equity for your business
Risks of Using Home Equity for Business
Using home equity introduces risks that don’t exist with traditional business loans or investor funding. These risks are often underestimated—especially by first-time entrepreneurs.
- Foreclosure risk: If your business fails and you can’t make payments, your home may be seized.
- Personal financial strain: Business losses can spill into household finances.
- Reduced flexibility: Tapping equity limits your ability to borrow for emergencies.
- Emotional pressure: Running a business is stressful; adding housing risk can magnify it.
Smart Perspective: If losing the business would be survivable but losing your home would not, this strategy may carry too much downside.
How to Use Home Equity to Start a Business
Here are some tips for getting equity out of your home to invest in your business:
How to get home equity for your business
- Check your eligibility: Know your home’s equity and compare it to the amount of the loan you need. Don’t expect the full value; lenders will usually require that you retain 15%–20% of your home’s equity.
- Decide if the risk is worth it: Using your home as collateral for a loan means you risk losing it. If you are unable to repay the loan, the lender can seize the property. An unsecured loan won’t put your home at such direct risk.
- Choose the type of loan: If you need a lump sum, consider a home equity loan. If you need cash flow, a home equity line of credit may be best. If you cannot secure a loan, you may want to obtain a home equity investment.
- Shop around: Don’t jump on the first offer you find. Interest rates vary per lender, and there are closing costs, upfront costs, and other fees to compare. If you are refinancing, you do not have to get a loan from the same lender who issued your original mortgage.
FAQ
Is it better to use home equity or personal savings to start a business?
Using personal savings avoids putting your home at risk, but it reduces liquidity. Home equity preserves cash reserves but introduces foreclosure risk. The better option depends on your financial cushion and tolerance for risk.
Does using home equity for business affect my credit score?
Yes. Missed payments can significantly damage your personal credit, and high balances—especially on HELOCs—can increase credit utilization and lower your score.
Can I use my home equity to buy a business?
Yes. A home equity loan is secured, and you can use the money however you wish, including to buy a business.
How do you get equity out of your house?
There are several ways to get equity out of your home, including selling your house, obtaining a home equity loan, cash-out refinancing, opening a home equity line of credit, or entering a home equity investment.
Can I refinance my home to start a business?
Yes. You can use the money from a second mortgage or a cash-out refinance to start a business.
Can you use home equity for an SBA loan?
Yes, though it is not required for a home equity business loan up to $25,000. If the business’s fixed assets cannot fully secure a loan above $25,000, a home can be used as collateral.
Key Takeaways
- You can use the equity in your home for your business however you choose, whether for startup costs or for cash flow.
- Using your home’s equity for a business loan means you risk losing your house. If you cannot repay the loan, the lender can foreclose on the property.
- There are multiple ways to leverage the equity in your home, including a home equity loan, a home equity line of credit, cash-out refinancing, and a home equity investment.
- How you plan to use your home’s equity can help you decide which type of loan is right for you.
By now, you probably have a good idea of how you want to use your home’s equity for your business, whether to cover startup costs, fill the gaps in your cash flow, or invest in new equipment or products. Now you need to find the right lender.
SuperMoney has all the reviews and comparison tools you need to find a loan that’s right for you. Compare company reviews, loan amounts, interest rates, and maximum loan-to-value ratios to find the best home equity loans, HELOCs, and home equity investments for all your business needs.
Explore All Ways to Use Home Equity for Business
If you’re deciding how to use home equity to start, grow, or buy a business, these in-depth guides break down each option, risk, and trade-off:
- Can You Use a HELOC to Start a Business? – Learn how HELOCs work for business funding and when they make sense.
- Using a Home Equity Loan to Start a Business – See how fixed-rate home equity loans compare to other funding options.
- Risks of Using Home Equity for Business – Understand the financial and personal risks before borrowing against your home.
- Business Loan vs Home Equity Loan – Compare costs, requirements, and risk exposure between loan types.
- Business Funding With No Monthly Payments – Explore equity-based options that avoid traditional loan payments.
- Home Equity or Personal Savings for Business – Decide which option carries the smarter risk for your situation.
- Using Home Equity to Buy a Business – Learn how home equity is used in business acquisitions and what to watch out for.
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