Can You Use a Home Equity Loan to Start a Business?

If you own your home, you can use a home equity loan or home equity line of credit to fund your business, but you have to put your home at risk.

Many or all of the companies featured provide compensation to LendEDU. These commissions are how we maintain our free service for consumerspensation, along with hours of in-depth editorial research, determines where how companies appear on our site.

Home equity loans and home equity lines of credit (HELOCs) let you turn the equity you’ve built in your home into cash. Lenders typically don’t restrict how you use the money from these loans, so using a home equity loan to start a business is something that you can do.

However, just because home equity loans are an option for funding your business doesn’t mean they’re the right choice. Home equity loans can be risky because they put your home up as collateral. There are other financing options for starting a business that might be a better choice.

1) See if you are eligible for a home equity loan or HELOC

The first thing you need to do is make sure that you’re eligible to get a home equity loan or HELOC.

One of the main things that lenders look at for home equity loans and HELOCs, aside from your credit history, is your loan-to-value (LTV) ratio. This ratio compares the size of your mortgage to the value of your home. Most lenders limit the amount they’ll lend to you to 90% 95% LTV.

For example, if you own a home worth $500,000 and work with a lender with a max LTV of 90%, you can’t get a loan that would push your home-related debt past $450,000 (90% of the home’s value).