Using A HELOC to Fund Your Business or Side Hustle
Your Home's Secret Superpower: Growing Your Business With A HELOC
If you're looking for funds to launch or grow your business or side hustle and have a solid plan and clear goals, your home might be your secret weapon. A Home Equity Line of Credit (HELOC) can give you flexible access to cash with lower interest rates than credit cards or personal loans. The best part? You're in control of when and how you use it.
Quick HELOC Math That'll Blow Your Mind
Let's break it down:
- Your home is worth: $300,000
- You still owe: $200,000 on the mortgage
Most banks allow you to borrow up to 80% of your home's value minus what you owe. In this case:
- 80% of $300,000 = $240,000
- $240,000 - $200,000 = $40,000 available to borrow
That's $40,000 you could use to invest in your business!
SBA Loan vs. HELOC: What's the Difference?
When funding your business, two options often come up: a Small Business Administration (SBA) loan and a HELOC. Here's an example of how they compare:
Let's say you borrow $50,000:
-
SBA Loan: Fixed 7% interest over 10 years = $580 monthly payment.
- Once you borrow $50,000, you cannot access the funds again.
-
HELOC: Variable 7% interest (interest-only payments) = $291.67/month*.
- You can use the same $50,000 repeatedly so long as you pay it back.
- You pay interest only on your outstanding balance. For example, if you need $4,000 for your business lease this month, you are paying interest only on the $4,000—not the entire $50,000.
*This is the interest-only minimum payment during the Draw Period. Making additional payments above the minimum due is ideal. All variable loans carry risks. Discipline is required for this type of strategy.
Pro Tip: Most banks will allow you to lock your interest rate on the amount of money you have withdrawn
Which is better? It depends on your need for speed, flexibility, and risk tolerance.
- SBA Loans are designed for businesses and offer fixed interest rates and long repayment terms. But, they require extensive paperwork and can take weeks to process.
- HELOCs offer quick access to funds, flexibility, and lower rates than credit cards — but your home is used as collateral, and rates can fluctuate if your bank doesn't allow you to lock your interest rate on a portion of the outstanding balance.
HELOC Success Story: Fast Moves and Strong Offers
The ability to move fast sometimes makes all the difference in real estate investing. A small business owner, Jasmine Grainger, shared her experience: “Using my HELOC gave me the flexibility to act quickly when a great investment property hit the market. I made a strong, all-cash offer, which sellers love. I later refinanced it into a traditional mortgage and paid off the HELOC. It allowed me to secure the deal and maximize my investment returns.”
This approach not only helped Jasmine expand her portfolio, but it also highlighted the amazing impact of having readily available funds at her fingertips.
The Possibilities: Imagine You Are A Content Creator or Shopify E-commerce Owner
- Use Funds To: Buy professional recording equipment, build a website, purchase inventory, set up an online store, and run targeted ads.
- Potential Result: A scalable income stream from course sales and start selling products quickly and generate revenue.
The Warning Label (Because We Keep It Real)
HELOC's can unlock great opportunities, but let's be clear — your home serves as collateral. If you can't repay, the consequences could be severe. So, borrow only what you are completely confident you can pay back.
- Risk of Home as Collateral: If you default, your home is on the line.
- Variable Interest Rates: Payments can change if rates go up.
- Disciplined Repayment: Treat this money like a business investment, not a shopping spree. Having a backup repayment plan ready will make all of the difference.
Game Plan to Consider
- Update Your Business Plan: It should be rock-solid and clearly outline your goals.
- Crystal Clear Repayment Plan: Know exactly how you'll repay the HELOC if your business plan works and have a Plan B in case you need to pivot.
- Calculate Payments: Use our HELOC calculator to estimate your payments and create multiple scenarios to compare side by side.
- Execute Like a Boss: Stay focused and disciplined.