Using Home Equity to Fund a Startup

Borrowing against your house can fund a startup without investors or a change to your cap table. The lender looks at your credit, your income and your home equity, and the debt is yours personally: if the company shuts down, the payments continue and the house stays pledged.

What does a $60,000 HELOC draw cost?

A home equity line of credit (HELOC) is a revolving line secured by your home. You can borrow up to your limit during a draw period that could last 10 years, then repay the balance, often over 10 to 20 years. The rate is usually variable: an index plus a margin, and the U.S. prime rate is a common index. Prime was 7.00% on October 2, 2026.

Say you draw $60,000 to cover 18 months of runway, and the lender adds a margin of 1.50 points, for a rate of 8.50%. That margin is an example for illustration only; each lender sets its own.

Interest-only during the draw period, if your plan allows it: $60,000 × 8.50% ÷ 12 = $425 a month, or $5,100 a year. Some plans require principal from the start.
18 months of runway: $7,650 in interest if you draw all $60,000 on day one. Drawing $3,333.33 at the start of each month cuts that to $4,037.50. Either way, you still owe $60,000.
If prime rises 2 points and your rate becomes 10.50%: $525 a month, interest only.
When repayment starts with $60,000 owed at 8.50%, the term sets the payment: $743.91 a month over 10 years, $590.84 over 15 years or $520.69 over 20 years. That is 75%, 39% or 22.5% more than the interest-only payment.

To test your own balance, rate and repayment term, use this HELOC payment calculator. Home Equity Calcs is a free calculator site from the team behind ClaimStartupGrants.

How big can the line be? Bank of America's general limit is 85% of the home's value, less the mortgage balance. PenFed's maximum is 85% for owner-occupied homes outside Texas and 80% in Texas. On a $500,000 home with a $300,000 mortgage, an 85% cap allows a line of up to $125,000.

Five ways to pull cash from your home, compared

Option	How the cash arrives	Payments while you build	Main risk for a founder
HELOC	Draw as needed, up to a limit	Interest-only may be allowed; variable rate	Payment jumps at repayment; lender can freeze the line
Home equity loan	One lump sum	Regular monthly payments, typically fixed rate	Interest on cash you have not spent yet
Cash-out refinance	New, bigger mortgage; you keep the difference	One new mortgage payment	New rate on your whole mortgage, plus closing costs
Home equity contract	Upfront cash from a company	None until settlement	One large payment at the end of the term or at sale
Reverse mortgage (HECM)	Loan for owners 62 and older	No monthly mortgage payments	Balance grows and equity shrinks

Cash-out refinance. You replace your mortgage with a bigger one, take the difference in cash and often pay closing costs. If the new rate is higher than your current one, it applies to the whole balance, including what you already owed; the CFPB says to weigh that carefully.

Home equity contract. Often called a home equity "investment": a company pays you cash now, and you repay one lump sum later, based partly on your home's value, by the end of a term of usually 10 to 30 years or when you sell. In its 2025 review, the CFPB found many contracts where the settlement amount rises 19.5% to 22% a year in the early years, well above rates on most home-secured loans.

Reverse mortgage. You must be at least 62 to get a Home Equity Conversion Mortgage (HECM), the federally insured type of reverse mortgage. You make no monthly mortgage payments; interest and fees are added to the balance each month, and the loan is repaid when you no longer live in the home.

What happens to your house if the startup fails?

Home equity debt is personal debt, and the company's results do not change what you owe. The CFPB warns that falling behind or failing to repay on schedule could cost you your home.

The payment outlives the company. In the example, that is $425 a month while you draw (if interest-only is allowed), then $520.69 to $743.91 a month for 10 to 20 years, paid from personal income.
The line can shrink. Federal rules let a lender block new draws or cut the limit if your home's value falls significantly below its appraised value, or if it reasonably believes a material change in your finances will keep you from repaying (12 CFR 1026.40(f)(3)(vi)). Count only money already drawn as runway.
Rates move, and repayment costs more. HELOC rates are usually variable, and the CFPB notes that monthly payments are often significantly higher once repayment begins. Some plans require the whole balance at once when the draw period ends.
Fees and waiting time. Possible costs include application, appraisal and closing fees, an annual fee, and an early-closure fee, usually within two or three years of opening. Some lenders waive up-front costs: Bank of America charges no closing costs on lines up to $1,000,000, but closing the line within 36 months costs $450 (lines under $25,000, properties in Maryland and Texas homesteads are exempt). For a line on your main home, federal rules hold back the money until your three-business-day right to cancel has passed.
Qualifying gets harder after you quit. U.S. Bank and Bank of America each require a credit score of 660 or higher, and U.S. Bank also weighs your debt-to-income ratio and income history. Apply while your salary is still on paper.

Options to compare before you pledge the house

Grants and R&D awards. If your company does research, SBIR and STTR awards provide non-dilutive federal funding to develop the technology. Our non-dilutive funding guide covers the wider list. The SBA itself does not provide grants for starting or expanding a business; here is what the SBA does fund.

Credits that lower burn. Cloud and software startup credits cut monthly costs, which shrinks the amount you need to borrow.

SBA microloans. Up to $50,000 through nonprofit intermediary lenders, with a maximum term of seven years and rates generally between 8% and 13%. SBA describes them as money to start or grow a small business; the borrower must be an operating, for-profit business.

SBA 7(a) loans. Up to $5 million, also for operating businesses. A 7(a) loan can still reach your house. SBA's lending rules, SOP 50 10 8.1 (effective October 1, 2026), say:

Owner guaranty (Section A, Chapter 5, Personal Guaranties): "Any individual who has direct and/or indirect ownership of 20% or more of an Applicant must provide an unlimited full guaranty."
Collateral shortfall (Appendix 19, Standard 7(a) Loans): "If there is a collateral shortfall (not 'fully secured') on the loan the Lender: Must take available equity in personal real estate subject to requirements in paragraph A., 1., e. in this Appendix."
25% equity floor (Appendix 19, para. A.1.e, Personal Real Estate): "the Lender is not required to take a lien when equity is less than 25% of the property’s fair market value."

That mandatory lien applies to Standard 7(a) loans: those above $350,000, other than SBA Express loans, which go up to $500,000. On 7(a) Small and SBA Express loans SBA does not require it, though lenders may take home equity under their own policies. At $50,000 or less, 7(a) Small and SBA Express loans need no collateral. On the $500,000 home with a $300,000 mortgage, equity is 40%. After a $60,000 HELOC balance it is 28%, still above 25%; if a lender counts a full $125,000 line instead, it is 15%.

Personal line of credit. You borrow based on your credit, and your home is not collateral. The CFPB notes that limits may be lower and rates higher than on home-secured options.

Can you deduct the interest?

Usually not as home mortgage interest. IRS Publication 936 (2025) allows the deduction for home equity loan and line interest only when the borrowed money buys, builds or substantially improves the home that secures the debt. Public Law 119-21 removed that rule's 2026 end date. Funding a startup does not meet the test.

Publication 936 adds that when mortgage proceeds go to business, investment or other deductible activities, the interest allocable to them can be deducted as that kind of expense, subject to any limits, under Temporary Regulations section 1.163-8T. Your company's structure decides which kind:

Sole proprietor: business interest, deducted on Schedule C.
C corporation: if you buy stock or lend the money to the company, IRS Publication 550 treats the interest as investment interest. You figure it on Form 4952 and deduct it on Schedule A, so it counts only if you itemize, and only up to your net investment income. The excess carries forward to the next year (26 U.S.C. 163(d)).
S corporation or partnership: putting borrowed money into the company is a "debt-financed acquisition." The Schedule E instructions send the interest to Schedule E or Schedule A, depending on how the company uses the money.

Ask a tax professional before you count on any of it.

How to decide: a founder's checklist

Have you applied for the grants, SBIR awards and credits your company qualifies for?
Could you make the repayment-period payment from personal income if the company earned nothing?
Does the plan still work at a rate 2 points higher?
Do you need cash in stages (HELOC) or all at once (home equity loan)?
Is your current mortgage rate lower than today's rates? Then a cash-out refinance raises the cost of debt you already have.
Would the plan survive the lender freezing the undrawn part of the line?
If you may need a Standard 7(a) loan (above $350,000, other than SBA Express) later, how much equity will your home have left above 25% of its value?