For entrepreneurs looking to start or grow a business in 2025, accessing capital continues to be one of the most critical and often most challenging parts of the journey. While traditional funding routes like bank loans, angel investors, and venture capital still hold value, a growing number of small business owners are exploring how personal assets, particularly home equity, can open doors to new business opportunities.

With the rise in home values over the last decade, many homeowners have built up significant equity, making it a powerful, and sometimes underutilized, financial tool. But is tapping into home equity a smart move for business funding? The answer, as with many financial decisions, depends on your goals, risk tolerance, and how well you understand your options.

Why Entrepreneurs Are Looking at Home Equity for Capital

Starting or expanding a business takes money, often more than expected. From equipment and staffing to marketing and tech infrastructure, costs can pile up quickly. 

Traditional funding options like SBA loans or private financing require credit checks, extensive documentation, and time. That’s where home equity enters the conversation.

Home equity is the difference between what you owe on your mortgage and what your home is currently worth. If you’ve owned your home for several years or bought during a market dip, you may have tens or even hundreds of thousands of dollars in accessible equity.

Here’s why that matters to entrepreneurs:

• Speed and Flexibility: Accessing home equity is often faster than seeking traditional business loans.
• Favorable Interest Rates: Mortgage-backed funding usually offers lower rates than unsecured loans or credit cards.
• Ownership Retention: Unlike equity funding, borrowing against home equity allows you to maintain 100% ownership of your business.

That said, using your home as leverage isn’t something to take lightly. You’re putting a significant personal asset on the line, and it’s important to fully understand both the advantages and the potential downsides.

Funding Options: How Homeowners Are Leveraging Equity in 2025

There are several ways to access the equity in your home, and each comes with its own benefits, risks, and ideal use cases. For business funding, the most common options include:

• Home Equity Line of Credit (HELOC)
• Fixed-rate HELOC
• Home Equity Loan
• Cash-out refinance

Let’s focus on the increasingly popular HELOC, particularly for business owners who need flexibility. A traditional HELOC works much like a credit card: you’re approved for a set amount, and you borrow as needed, repaying only the portion you use. However, in a climate of interest rate uncertainty, many entrepreneurs are now considering a more stable version of this tool.

Understanding how fixed-rate HELOCs work is crucial. Unlike variable-rate HELOCs that can fluctuate month to month, fixed-rate HELOCs offer consistent payments over time, helping you budget more effectively. This predictability can be especially helpful when cash flow is tight or you’re projecting startup costs over a long ramp-up period.

In 2025, hybrid loan products like fixed-rate HELOCs are gaining popularity because they blend flexibility with financial stability – a rare and valuable combination for early-stage businesses.

How Home Equity Compares to Other Funding Options

If you’re exploring business funding, it’s worth comparing home equity against some more traditional methods to see what fits best.

Borrowing against your home equity will likely give you lower interest rates than business loans or credit cards. It can also be faster to access, especially if you already have strong equity and good credit. Unlike taking on investors, you won’t have to give up any ownership or decision-making power in your business.

In contrast, small business loans are designed specifically for business purposes and don’t require you to put your home on the line. However, they typically come with stricter qualifications, higher interest rates, and longer approval processes. Credit cards offer quick access but can become financially draining due to high interest rates and a potential impact on your credit score if balances aren’t managed carefully.

Then there’s equity financing or crowdfunding. These routes can provide capital without debt, but they may dilute your ownership or require a lot of effort in building a public-facing campaign, something that doesn’t appeal to every entrepreneur.

Ultimately, home equity stands out because it allows you to tap into an existing personal resource without giving up part of your company. But it does come with the personal risk of tying your home to your business’s success.

Is Tapping Home Equity Right for Your Business?

Before deciding to use your home equity to fund your business, it’s essential to evaluate both your business goals and your financial stability. Here are some questions to help you assess your readiness:

• Is your business plan solid?
• Do you have a clear repayment strategy?
• Are you financially secure personally? 
• How will you use the funds?

For some, a blend of funding sources might be the right answer. Using a portion of home equity to kick-start growth while pursuing outside investment or grants later.

Tips for Using Home Equity Wisely

If you’ve decided that accessing your home equity makes sense for your business, here are some best practices to help you make the most of it:

• Separate Personal and Business Expenses: Even though you’re using personal equity, keep business spending distinct to maintain clean records and avoid IRS headaches.
• Start With a Realistic Budget: Know exactly what you need and avoid borrowing more than necessary.
• Use Funds Strategically: Focus on areas that will drive the highest return, like product development or customer acquisition.
• Stay on Top of Repayments: Even fixed-rate HELOCs can become a burden if you’re not tracking revenue and cash flow closely.

Using home equity isn’t just about having access to capital – it’s about leveraging a long-term investment in your home to build something new. Done right, it can offer the momentum a small business needs to move from idea to reality.

The Bottom Line

In today’s evolving financial landscape, savvy entrepreneurs are looking beyond traditional funding sources to finance their growth. Home equity, when used wisely, can provide a cost-effective and flexible funding solution that helps business owners maintain control of their ventures while fueling long-term success.

But it’s not without risks. By understanding tools like fixed-rate HELOCs and comparing them thoughtfully with other capital options, entrepreneurs can make smart, informed decisions tailored to their goals.

In 2025, business funding is no longer one-size-fits-all. And for many, the key to unlocking their next phase of growth might just be sitting under their own roof.