Can you use a HELOC for business?

Yes, you can use a HELOC to fund a business. There are two ways to do it: take a regular consumer HELOC from a bank and spend it on the business, or take a business purpose HELOC, which is built for exactly this and deposits the money into your business bank account. For most self-employed owners the second is easier to qualify for, for one reason: how income is verified.

Option 1: a consumer HELOC spent on the business

Many banks and credit unions do not restrict what HELOC funds are spent on. The difficulty is getting approved. A consumer HELOC is underwritten like a mortgage: W-2s or tax returns, and income taken from the bottom line of those returns. Business owners who write off everything they legitimately can often show far less taxable income than the business actually supports, and the application stalls on debt-to-income.

Consumer HELOCs also come with the full consumer-lending process — longer disclosures, appraisal scheduling, and timelines that commonly run several weeks.

Option 2: a business purpose HELOC

A business purpose HELOC is a line of credit secured by your home where the funds are required to be used for the business and are deposited into a business bank account. Because the purpose is commercial, it is a business loan rather than a consumer one, and the process is built around how owners actually earn money.

• Income is read from your business and personal bank accounts through a secure bank connection, so deposits count — not just the bottom line of a tax return.
• Applying is a soft credit pull. The hard pull happens once, when you accept the pre-approval offer.
• Qualifying files are valued by an automated model instead of an in-person appraisal.
• Closing happens with an online notary over video.
• The full approved amount lands in the business account, and as you pay it down you can redraw during the redraw period.

This is the product Capova Capital arranges. Lines start at $25,000 and typically fund in 5 to 11 days from application.

What owners use it for

• Paying off merchant cash advances — by far the most common use. Several daily debits become one monthly payment.
• Inventory ahead of a busy season, or a supplier's bulk discount.
• Covering payroll while waiting on a large customer invoice.
• Equipment or a vehicle, without a separate equipment loan.
• Build-out and opening costs for a second location.
• Consolidating high-cost business credit cards and short-term loans.

The honest trade-off

Your home becomes collateral for business debt. That is why the money is cheaper than unsecured business financing — and why it only makes sense when the business can carry the payment. If the business cannot, the property is at risk in a way it was not before. Borrow for uses that pay the loan back.

Quick test: is a business purpose HELOC a fit?

1. 01You own a business, as a sole owner or with partners.
2. 02You own a home with equity, titled in your personal name (or you are willing to deed it out of an LLC first).
3. 03Your monthly debts, including the new payment, come to 50% or less of the income your bank accounts show.
4. 04The money is for the business, not for personal use.