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Struggling with high-interest business debt? You’re not alone. Many small business owners are seeking creative, cost-effective solutions to reduce their monthly payments and improve cash flow. One increasingly popular strategy is tapping into home equity via a Home Equity Line of Credit (HELOC) to consolidate high-rate business debt.
This article explores how a HELOC works, why it can be a powerful financial tool, and what to consider before making the leap.
What Is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home. It allows you to borrow against the equity you’ve built up, much like a credit card but with significantly lower interest rates—especially compared to traditional business loans or credit cards.
Key Features:
- Variable interest rates (though some lenders offer fixed-rate options)
- Flexible borrowing terms, usually 5-10 years
- Lower interest compared to business credit lines
Why Use a HELOC to Consolidate Business Debt?
High-rate business credit cards or short-term loans can eat into your profits quickly. Consolidating this debt into a HELOC may reduce your monthly payments and total interest paid.
Benefits of Using a HELOC for Business Debt:
- Lower interest rates than most business credit cards and unsecured loans
- Simplified repayment with one monthly payment
- Improved cash flow to reinvest in your business
- Tax-deductible interest (in some cases—check with a tax advisor)
Ready to explore your HELOC options? Speak with one of our lending experts today.
Potential Risks to Consider
While a HELOC can be a powerful financial tool, it also comes with risks—most notably, your home is the collateral.
What You Need to Watch For:
- Variable interest rates can rise over time
- Risk of foreclosure if you default on payments
- Debt spiral if underlying spending habits don’t change
Always work with a financial advisor before using personal assets for business liabilities.
How to Consolidate High-Rate Business Debt With a HELOC
Here’s a step-by-step process for using a HELOC to consolidate business debt effectively:
1. Evaluate Your Home Equity
Check how much equity you have in your home—generally, lenders allow you to borrow up to 85% of your home’s value, minus your mortgage balance.
2. Compare Lenders
Look for competitive rates, fees, and draw terms. Use our HELOC comparison guide to get started.
3. Apply and Get Approved
Submit income verification, property documentation, and credit history. Approval typically takes 2–6 weeks.
4. Draw Funds and Repay Business Debt
Once your HELOC is open, use the draw period to transfer funds and pay off high-interest business debts.
5. Set a Repayment Strategy
Avoid just paying the minimum. Create a realistic plan to repay the HELOC efficiently, especially before the end of the draw period when amortization kicks in.
Curious how much a HELOC could save you each month? Try our free business debt calculator.
Internal Links to Explore
To support your decision-making, check out these resources:
- What Is a HELOC and How Does It Work?
- Top Strategies for Paying Off Small Business Loans Early
- Refinancing vs. Debt Consolidation: Which Is Right for You?
FAQ: Using a HELOC to Consolidate Business Debt
Is it legal to use a HELOC for business purposes?
Yes, you can legally use HELOC funds for any purpose, including business debt repayment.
Will using a HELOC hurt my personal credit?
It can affect your credit utilization and payment history, so responsible use is crucial.
Can I deduct the interest from my taxes?
Sometimes. If you use the funds for business expenses, consult with a CPA about deductibility.
Read Next
Want to keep learning? Here are more articles to guide your journey:
- Hard to Get a Bank Statement Loan Tips and Advice
- Bank-Statement Cash-Out Refinance to Fund a New Business Venture
Need personalized advice on debt consolidation? Schedule a free consultation with our team.
Unlock Your Home Equity with Figure
- Approval in 5 minutes. Funding in as few as 5 days
- Borrow $20K-$400K
- Consolidate debt or finance home projects
- Fastest way to turn home equity into cash
- 100% online application
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
