Can You Use the Equity in Your Home to Set Up a Business?

Unlock the Value in Your Home to Fund Your Business

Starting a business requires capital, and if you own a home, you might have an untapped resource to help—your home equity. By leveraging the value of your property, you could secure affordable financing to start or expand your business.

However, using home equity comes with risks and responsibilities, so it’s crucial to understand how it works and whether it’s the right option for you.

What Is Home Equity?

Home equity is the portion of your property you own outright, calculated as the difference between its market value and your outstanding mortgage.

Example:

• Home Value: $700,000
• Mortgage Balance: $400,000
• Total Equity: $300,000
• Usable Equity (up to 80% LVR): $160,000

Lenders typically allow borrowers to access up to 80% of their home’s value as usable equity.

How Can You Use Home Equity for Business Financing?

There are multiple ways to tap into your home equity for business funding:

1. Equity Loan (Lump Sum Loan)

A one-time loan secured against your equity, ideal for funding business purchases like inventory, equipment, or marketing expenses.

• Fixed repayment schedule
• Lower interest rates than unsecured business loans
• Increases mortgage balance

2. Line of Credit

A flexible borrowing option that allows you to draw funds as needed, similar to a credit card.

• Pay interest only on the amount used
• Ideal for managing cash flow
• May have higher interest rates than a lump sum loan

3. Cash-Out Refinance

Refinancing your mortgage to a higher amount and withdrawing the extra funds as cash.

• Can reduce overall loan repayments if refinancing at a lower rate
• Suitable for those needing larger sums
• Extends mortgage term

Pros and Cons of Using Home Equity for Business

What Are the Alternatives?

If using your home equity isn’t the right fit, consider:

• Traditional Business Loans – Secured or unsecured financing for business expenses.
• Personal Loans – Suitable for small business needs, but often higher interest.
• Government Grants – Various startup grants may provide funding without debt.

Is Using Home Equity Right for You?

Before leveraging your home equity, consider:

• Your ability to make repayments – Ensure it won’t strain your finances.
• Lender policies & fees – Check for any restrictions or additional costs.
• Other financial obligations – Prioritize emergency funds and existing debts.

Speak to a Home Loan Specialist at Vantage Loans

Financing your business is a big decision, and we’re here to help. Vantage Loans can guide you through the process of accessing home equity, refinancing options, and alternative funding solutions.

Call 1800 595 500, email [email protected], or visit vantagefinancial.com.au to discuss the best strategy for your business financing needs.