HELOC for Business Expenses: What You Need to Know (Including the Tax Trap)

Last updated: February 2026

Using a HELOC to fund your business is tempting. Lower rates than business loans. No business credit history required. Fast access to significant capital.

But before you tap your home equity for your startup or business expenses, you need to understand the risks—including a tax trap that catches many entrepreneurs off guard.

Here's the honest truth about using a HELOC for business.

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Can You Use a HELOC for Business?

Yes, it's completely legal.

HELOC lenders don't restrict how you spend the funds. Once the money is in your account, you can use it for:

• Starting a business
• Inventory purchases
• Equipment
• Payroll
• Marketing
• Office space
• Any other business expense

There's no rule against it. But "legal" doesn't mean "smart."

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Why Business Owners Consider HELOCs

The appeal is real:

Lower interest rates. HELOCs average ~7.44% versus 10-30% for business loans and lines of credit.

No business credit needed. New businesses struggle to get financing. Your home equity doesn't care how long you've been in business.

Flexible access. Draw what you need, when you need it. Only pay interest on what you borrow.

Faster approval. Business loans can take months. HELOCs close in weeks (sometimes days).

Higher limits. If you have significant home equity, you may access more capital than any business loan would offer.

For entrepreneurs with limited options, this looks like a lifeline.

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The Tax Trap Most People Miss

Here's what HELOC-for-business enthusiasts don't tell you:

HELOC interest is NOT tax-deductible when used for business expenses.

Under current tax law, mortgage interest (including HELOC interest) is only deductible when the funds are used to "buy, build, or substantially improve" your home.

Using HELOC funds for your business? Not deductible.

Why this matters:

On a $100,000 HELOC at 7.44%, you'll pay about $7,440 in interest per year. If that were deductible, you'd save roughly $1,860-$2,600 annually (depending on your tax bracket).

That's real money left on the table.

Compare to business financing:

A business line of credit has higher rates—but the interest IS tax-deductible as a business expense. That narrows the effective rate gap significantly.

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The Bigger Risk: Your Home Is Collateral

This is the risk that keeps financial advisors up at night.

If your business fails and you can't repay the HELOC, you could lose your home.

Business failures are common. According to the Bureau of Labor Statistics, about 20% of new businesses fail within the first year. Nearly half fail within five years.

With a traditional business loan, a failure means credit damage and potential bankruptcy. Painful, but you keep your house.

With a HELOC-funded business, a failure could mean foreclosure.

Ask yourself:

• Can you afford the HELOC payments even if the business produces zero revenue?
• Is there someone else (family, co-founder) who could help make payments if things go wrong?
• Would losing your home devastate your family's stability?

Be brutally honest. Entrepreneurial optimism is great—but not when your family's housing is at stake.

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Best Practices If You Decide to Proceed

If you've weighed the risks and still want to use a HELOC for business:

1. Keep funds separate. Open a dedicated business bank account. Transfer HELOC funds there and only use them for documented business expenses. This creates a clean paper trail.

2. Document everything. Keep receipts and records of every business purchase. You'll need them for tax purposes and potential audits.

3. Have a repayment plan. Know exactly how the business will generate enough revenue to cover HELOC payments. "We'll figure it out" isn't a plan.

4. Keep a personal emergency fund. Don't drain every dollar into the business. Keep 3-6 months of HELOC payments in reserve, separate from business funds.

5. Consider a partial HELOC approach. Instead of funding 100% of your business with HELOC money, use it to supplement other financing. Diversify your risk.

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Alternatives to Consider

Before tapping your home equity, explore these options:

SBA Loans

Government-backed loans with competitive rates. Longer approval process, but interest is tax-deductible and your home isn't at risk.

Business Lines of Credit

Similar flexibility to HELOCs, but secured by business assets instead of your home. Rates are higher, but risk is contained to the business.

Business Credit Cards

Higher rates, but useful for smaller expenses. Many offer 0% intro periods. Rewards can offset some costs. Good for building business credit history.

Equipment Financing

If you need specific equipment, these loans use the equipment itself as collateral. Easier to qualify and doesn't touch your home equity.

Investors or Partnerships

Give up some equity in the business instead of risking equity in your home. May be worth exploring for larger capital needs.

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When a HELOC Might Actually Make Sense

There are situations where a HELOC for business isn't reckless:

Short-term bridge financing. You have a confirmed contract or receivable coming in, but need cash now. The HELOC bridges a timing gap you're confident will close.

Strong existing cash flow. Your business is already profitable, and you need capital for expansion—not survival. You can cover HELOC payments from existing revenue.

Significant home equity cushion. You're borrowing a small percentage of your available equity, leaving plenty of buffer even in a worst-case scenario.

No other options for a proven concept. You've been denied business financing elsewhere, but have a track record of success and a clear path to repayment.

Even then, proceed with caution.

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The Bottom Line

Can you use a HELOC for business expenses? Yes.

Should you? That depends on your risk tolerance, home equity cushion, and alternative options.

The lower interest rate is attractive. But when you factor in the lost tax deduction and the risk of losing your home, the math isn't always as favorable as it first appears.

Our recommendation:

Explore business-specific financing first. If a HELOC is truly your best option, borrow conservatively and have a clear repayment plan that doesn't depend on business success.

Your entrepreneurial dreams matter. So does your family's home.

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Considering Your Options?

If you decide a HELOC is right for your situation, HonestCasa can help you understand your equity and explore your options—with full transparency and no pressure.

[Explore Your HELOC Options →]

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FAQs

Is HELOC interest tax-deductible for business expenses?

No. Under current tax law, HELOC interest is only deductible when funds are used to buy, build, or substantially improve your home. Business expenses don't qualify, even if the HELOC is secured by your home.

Can I get a HELOC to start a business?

Yes, lenders don't restrict HELOC fund usage. But it's risky—if the business fails, you could lose your home since it's used as collateral.

Is it better to get a business loan or use a HELOC?

Generally, business loans are safer because they don't put your home at risk. Business loan interest is also tax-deductible. HELOCs have lower rates but higher personal stakes.

What happens if my business fails and I can't pay the HELOC?

The lender can foreclose on your home since it's the collateral for the HELOC. This is the primary risk of using home equity for business purposes.