How business HELOCs work: Your ultimate guide

A business home equity line of credit (HELOC) is a revolving line of credit in your business’s name secured by the equity in your personal home (or investment home). It allows business owners to borrow against the equity they have in their property to fund business expenses.

This product can be a helpful business financing option, especially for those who are just starting out and may not have large company assets.

However, any time you borrow money, it’s important to make sure you understand what a business HELOC is, how it works, how it’s different from other business loans, and what sort of businesses may be eligible to get one.

How does a business HELOC work?

The funds from a business HELOC are in your business’s name, which creates separation from your personal finances. This business financing option can have lower interest rates than those for other business lending sources.

Keep in mind, your personal residence is securing the line of credit. So, even if the business HELOC is not in your name, any issues with repayment can affect your personal life.

What are the stages of a business HELOC?

Getting a HELOC for business can be a simple process. Here are the steps someone would take at Elevations:

• Application: Apply for a HELOC through a lender, providing necessary documentation about your home and ability to repay.
• Approval: Once approved, you may receive a line of credit based on the equity in your home.
• Draw period: During the draw period (usually 5-10 years), you can borrow funds as needed up to the credit limit. Some institutions (like Elevations) may offer interest-only payment options during this time, though this would not decrease the loan balance.
• Repayment: After the draw period, you enter the repayment phase, where you pay back the borrowed amount. If you only made interest-only payments during the draw period, your minimum payments increase.

Business line of credit vs. HELOC

There are many types of business financing options. Here’s how to compare a business line of credit vs. HELOC:

• Collateral: Business loans may require business assets as collateral, while home equity loans use your home (main residence or investment property) as collateral.
• Interest rates: Home equity loans often have lower interest rates compared to business loans.

Benefits of a business HELOC 

There are many reasons to consider getting a business HELOC if you intend to fund your business with the loan proceeds:

1. Clarity and organization: A HELOC for business helps maintain clear and organized financial records. This makes it easier to track business expenses, income, and profitability without the confusion of personal transactions.

2. Tax compliance: Separating business lending from your personal accounts with a business HELOC can simplify tax preparation and help you comply with tax laws. This can help you accurately report business income and expenses.

3. Financial analysis: A business HELOC can allow for better financial analysis and decision-making. Business owners may be able to more easily assess the financial health of their business with a business HELOC vs a typical HELOC. This can help them make informed decisions based on accurate data.

4. Audit preparedness: In case of an audit, having a business HELOC vs using a personal HELOC for your company can make it easier to provide the necessary documentation and support for business transactions.

5. Interest payment deductions: You may also be able to deduct business HELOC interest payments as business expenses, but you’ll want to consult with your tax advisor to confirm.

Can a business with an LLC get a HELOC?

If you have an LLC, a business HELOC is a great small business funding option. As with other HELOCs for business, these products typically require the business owner to use their personal residence as collateral.

The process involves submitting an application in the LLC’s name. Note that the property owner would be considered a guarantor.

Many types of business structures can get a business HELOC, but it’s important to think about the relationship between the business owners and the owners of the personal property being used as collateral.  

If the business owners include individuals who are not owners of the property, it’s probably worth talking to a business banker to see what the best option available to you is.

Get more information

Do business HELOCs benefit self-employed professionals?

Self-employed individuals can use a business HELOC as a small business funding option to invest in business growth, or cover unexpected expenses.

Using HELOCs for business growth

Business HELOCs can help leverage personal home equity for business purposes.

By understanding the nuances of a business HELOC, business owners can make informed decisions about leveraging their home equity to support and grow their businesses.

The Elevations Business HELOC includes:

• Long-term liquidity: 10-year draw period followed by a 10-year repayment period
• Affordable payments: Interest-only payments during the draw period
• Fast processing: Local, in-house underwriting and processing for fast turnaround times

Learn more about how Elevations can help your business with a business HELOC, business banking products, and more.

Commonly Asked Questions

What can I use my business HELOC funds for?

When you get a HELOC for your business, you can use it for just about any business expenses, from renovations to equipment purchases.

How much can I borrow?

The amount you're able to borrow varies based on different factors like your credit score, available home equity and more. The best option is to complete this quick form so our Business Banking Team can talk through your options.

How long does it take to get my funds?

Since Elevations is based in Colorado with a local, in-house underwriting and processing team, you can often receive your funds in as little as two weeks once we get your application. Document collection and appraisal can affect this timeline.

Do I have to use my primary residence, or can I use an investment property?

You can use either your primary residence or an investment property as long as the property is located within our field of membership.

Will I need to have an appraisal completed?

This depends on the collateral and the loan amount requested. For details specific to your situation, please speak with your Local Business Banking Relationship Manager.