Business loan vs. home equity loan | Which is a better value?

Compare business loans vs. home equity loans for financing your company

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Need access to capital? Weigh these two lending tools to see how they can work for your business.

You’ve done the work to start your business, but now you need access to more capital to keep it growing. You have plenty of loan options to consider, but the question is: Which type of lending can best fit the financial needs of your business?

If you’re weighing a business loan against a home equity loan, read our guide to learn what separates these two financing options and which might be better for your business.

LoanBuilder, A PayPal Service Business Loans

Our top pick: LoanBuilder, A PayPal Service

Customizable business loans with no hidden fees.

  • Min. Amount: $5,000
  • Max. Amount: $500,000
  • One-time fixed fee charged over the life of the loan
  • Acclaimed customer service
  • Requirements: $100,000+ annual revenue, 1+ years in business, 600+ personal credit score

    How do business loans differ from home equity loans?

    A business loan is a fixed amount of capital provided by a lender in return for monthly payments with added interest. Whether unsecured or secured, business loans come with set maturity dates by which you must repay the loan.

    Similar to a business loan, a home equity loan gives you access to capital. But the amount you’re approved for is ultimately based on the amount of equity you have in your home. Lenders determine your home equity by looking at the current value of your property less the mortgage you owe on it. A home equity loan uses the equity of your property as collateral to secure the loan.

    Business loanHome equity loan
    Maximum amountUp to $5 millionUp to 80% of your home value
    Interest ratesAs low as 6%As low as 4.25%
    Repayment termsDaily, weekly or monthly payments with interest over a term of 3-25 yearsMonthly payments with interest over terms of 5–20 years
    Collateral requiredDepends on the lender and your qualificationsYour home

    Compare business loans from top online lenders

    Rates last updated August 16th, 2018
    Unfortunately, none of the business loan providers currently offer loans for these criteria.
    Name Product Product Description Min Loan Amount Max. Loan Amount Requirements
    Kabbage Small Business Line of Credit
    A simple, convenient online application could securely get the funds you need to grow your business.
    Must have been in business for at least 1 year. Revenue minimum is $50,000 annually or $4,200 per month over the last 3 months.
    LoanBuilder, A PayPal Service Business Loans
    Customizable loans with no origination fee for business owners in a hurry.
    Annual business revenue of at least $42,000, at least 9 months in business, personal credit score of 550+.
    Lending Express Business Loan Marketplace
    At least 3 months in business and $10,000+ in monthly revenue. Your business might also qualify if it's been in business at least 6 months with $3,000+ in monthly revenue.
    Excel Capital Management Small Business Loans
    Get personalized financing options that suit your unique business needs in just a few simple steps.
    Varies by loan type
    Varies by loan type
    Your business must operate in the US, be at least 1 year old and have monthly revenue of $15,000+.
    LendingTree Business Loans
    Multiple business financing options in one place including: small business loans, lines of credit, SBA loans, equipment financing and more.
    Varies by lender and type of financing
    Varies by lender and type of financing
    Varies by lender, but you many require good personal credit, a minimum business age and minimum annual revenue.
    LendingClub Business Loans
    With loan terms that vary from 1 to 5 years, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.
    2+ years in business; $50,000+ in yearly sales; No bankruptcies or tax liens; At least 20% ownership of your business; Fair or better personal credit
    Fora Financial Business Loans
    No minimum credit score requirement and early repayment discounts for qualifying borrowers.
    Business age 6+ months. Monthly revenue $12,000+. No open bankruptcies.
    OnDeck Small Business Loans
    A leading online business lender offering flexible financing at competitive fixed rates.
    Must have been in business for at least one year with annual revenue of $100K+. Must have a personal credit score of 500+.
    National Business Capital Business Loans
    Get a large business loan to cover your financing needs, no matter what the purpose is. Startups welcome with 680+ credit score.
    Your company must have been in business for at least 6 months and have an annual revenue of at least $180,000.
    Seek Business Capital Funding Solutions
    Startups and newer businesses could qualify for loans and credit cards with a custom financing package.
    Personal credit of 680+, no bankruptcies in the last 4 years. Business Loan Marketplace
    Get connected with wide range of loan amounts and multiple loan types from reputable lenders.
    Must have good credit and at least 6 months in business.

    Compare up to 4 providers

    What are the benefits of business loans and home equity loans?

    Business loan

    • Competitive interest rates. Unlike business credit cards that tend to come with higher APRs, business loans can offer interest rates as low as 6%.
    • Access more capital. Depending on the lender, you could qualify for a loan of up to $5 million.
    • Variety of loan options. Multiple loan types are available — installment loans, interim loans, balloon payment loans and lines of credit.

    Home equity loans

    • Predictable payments. With a fixed interest rate, you can expect to pay the same amount each month.
    • Lower interest rates. While business loans can have competitive interest rates, home equity loans can be even lower since they’re secured by a personal asset.
    • Tax-deductible interest. Interest paid on home equity loans is often tax-deductible.
    • Flexible spending. Unlike business loans, you can generally use your home equity loan for any legitimate purpose.

    What are the drawbacks of business loans and home equity loans?

    Business loan

    • Extensive application process. You’ll need to submit a comprehensive range of documents with your application; once complete, your application could take several weeks to process.
    • Strict requirements. Business loan lenders prefer established businesses to startups, and often require a personal credit score of at least 700 and a business credit score of 75 or higher.
    • Collateral required. Secured business loans require collateral — such as business inventory or real estate — to protect the lender against default.

    Home equity loans

    • Long repayment terms. Some home equity loans take up to 20 years to repay, which can cost you more in the long run.
    • Home value can affect equity. If your home declines in value, you could lose the available equity in your home and be forced to refinance.
    • You could lose your home. If you default on loan payments, your lender may sell your home to repay the debt.
    • Closing costs. Home equity loans can sometimes come with more costs than a business loan, including appraisal fees, application fees and even lawyer fees.

    Loans vs. lines of credit

    Does your business need a continuous source of financing to cover an ongoing project or make up for a drop in sales during an off season? You might want to take out a line of credit instead of a loan.

    These give your business access to a set amount of funds that you can withdraw from and repay as you need. Think of it as a credit card but with higher limits, generally lower rates and less time to pay off your debts.

    If this is something your business could benefit from, consider looking into a business line of credit or a home equity line of credit (HELOC) instead of fixed-term loans.

    Which borrowing option is better suited for me?

    Applying for a business loan could be a solid option if:

    • You’ve been in business for several years and have decent personal and business credit scores.
    • You need access to a large amount of capital.
    • You’d like to build your business’ creditworthiness.

    A home equity loan could be helpful if:

    • You own your home and are having trouble accessing a traditional business or personal loan.
    • You’d like to leverage the value of your home for a large one-time expense.
    • You’re looking to start a business and need access to a fixed amount of capital.

    Business equity loans: The best of both worlds

    If your small business already has some valuable assets, you might want to consider taking out a business equity loan instead. These work similar to home equity loans except instead of putting your house up for collateral, your commercial real estate or equipment is at stake.

    Also you typically can’t get a business equity loan from your bank or mortgage lender. Instead, you’ll have to borrow from a lender that specializes in business loans.

    Business equity loans explained

    What's the difference between business equity financing and a business equity loan?

    An equity investment is when you sell a portion of your business’s ownership — a share — to an investor in exchange for financing. A business equity loan is when you put your business’s assets up for collateral to up your chances of getting approved for a loan with low rates.

    Startups and small businesses that have trouble qualifying for a business loan might want to consider business equity investments. You can read more about how business loans and equity investment stack up by checking out our comparison guide.

    Bottom line

    Operating a business and managing financial options can be challenging. To help your business thrive, understand the options available to you before settling on a decision.

    Business loans and home equity loans both offer access to financing, but interest rates, terms and lenders will vary.

    If you’re a well-established business seeking a competitive rate and flexible terms, a business loan could be a good fit for you. If you require access to capital and haven’t had luck with traditional lenders, you may want to look into a home equity loan instead.

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    Frequently asked questions about business and home equity loans

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