Last updated: November 2025
Quick Answer
HELOCs and SBA loans both provide business funding, but they serve different needs. A HELOC lets you borrow against your home equity and access flexible funds on demand. SBA loans offer structured, long-term financing backed by the federal government. The right choice depends on your timeline, risk tolerance, and financial goals.
What is a HELOC?
A home equity line of credit (HELOC) is a secured, revolving line of credit that allows you to borrow against the available equity in your home.
Assuming you’re approved, you receive a credit limit—based on a percentage of your home’s value minus your mortgage balance—and can draw funds as needed during the draw period, typically 10 years. After that, a repayment period begins, often lasting 10–20 years.
HELOCs function similarly to credit cards but with significantly lower interest rates because your home serves as collateral. Monthly payments are usually interest-only during the draw period, giving you flexibility in how and when you repay.
Common HELOC uses
- Funding home renovations
- Covering emergency medical expenses
- Paying for college tuition
- Consolidating high-interest debt
- Financing business start-up or expansion costs
Since a HELOC uses your personal residence as collateral, it’s essential to understand the risks, including the possibility of foreclosure if payments are missed.
Read more: What is a HELOC?
What is an SBA loan?
SBA loans are business loans issued by approved lenders but partially guaranteed by the U.S. Small Business Administration. These loans are designed to make it easier for small businesses to access capital by reducing lenders’ risk.
SBA loans are not issued directly by the government, but they are subject to strict federal guidelines to protect borrowers and lenders alike.
Primary SBA loan types
- SBA 7(a) Loan: Versatile option for working capital, inventory, or expansion, up to $5 million
- SBA 504 Loan: Long-term, fixed-rate financing for purchasing commercial real estate or large equipment
- SBA Microloan: Designed for startups or very small businesses; loans range up to $50,000
These loans often come with competitive interest rates, extended repayment terms, and lower down payments than conventional business loans.
However, the application process is longer and more documentation-heavy, and a personal guarantee is usually required.
Key differences between HELOCs and SBA loans
Both HELOCs and SBA loans provide funding, but their structures, terms, and risks differ significantly. Understanding how each option aligns with your goals is critical before deciding.
| Feature | HELOC | SBA Loan |
| Purpose | Personal or business use | Business use only |
| Collateral | Personal home | Business assets (may include personal guarantee) |
| Repayment structure | Revolving line of credit | Fixed monthly payments |
| Interest type | Usually variable | Fixed or variable |
| Loan amount | Based on home equity | Up to $5 million |
| Time to fund | 1–3 weeks | 4–8 weeks |
| Risk | Risk of losing home | Risk tied to business or guarantee |
| Use of funds | Flexible (home or business expenses) | Must support business operations |
HELOCs are faster and more flexible, but they’re personally secured. SBA loans offer large sums and lower risk to your home, but require more time and paperwork.
Learn: How does a HELOC work?
When a HELOC might be the better choice
A HELOC may be the better option if you need quick, flexible funding and have significant equity in your home. Entrepreneurs often use HELOCs to bootstrap a new venture, cover operational costs, or fund short-term growth projects.
Since approval is largely based on your personal credit profile and equity, business financials are not typically required.
Advantages of using a HELOC for business
- Approval in weeks, not months
- Interest-only payments during the draw period
- Reusable credit line for recurring expenses
- Fewer restrictions on how the funds are used
However, it’s important to weigh the risks. Because the loan is tied to your primary residence, missed payments or financial distress could jeopardize your home. In addition, variable interest rates could rise over the loan term, increasing repayment costs.
Read more: Use our HELOC calculator.
When an SBA loan might be the better choice
If your business is already established and you’re looking for a structured, long-term capital solution, an SBA loan may be the right fit.
These loans provide fixed or low-variable rates, extended repayment terms, and large borrowing limits that can work well for purchasing property, acquiring inventory, or expanding operations.
Advantages of SBA loans
- Repayment terms up to 25 years for real estate
- Loan amounts up to $5 million for qualified borrowers
- No prepayment penalties on certain SBA loan types
- SBA backing reduces risk to lenders, which can help with approval
However, SBA loans are not fast. The application process involves detailed documentation, including business plans, financial statements, tax returns, and personal financial disclosures. The approval timeline can range from four to eight weeks or longer.
Learn: How to apply for a HELOC.
Using a HELOC to finance a business
HELOCs are commonly used by entrepreneurs to finance business needs, especially for sole proprietors or home-based businesses.
This route allows you to bypass the complexities of traditional business lending by tapping personal equity.
Popular business uses for HELOC funds
- Hiring contractors or employees
- Purchasing equipment or inventory
- Launching a marketing campaign
- Covering initial rent and utilities
While convenient, using a HELOC for business purposes puts your personal assets at risk. If your business doesn’t generate enough income to repay the loan, you’ll still be personally responsible for repayment.
This is a key distinction between HELOCs and SBA loans, which are structured to isolate business and personal risk.
Consider your risk, timeline, and funding purpose
The best financing option depends on what you’re solving for.
Ask yourself:
- Do you need funds in the next few weeks? A HELOC may be faster.
- Is your equity strong and accessible? Then a HELOC is an option.
- Do you want long-term repayment and structured terms? SBA is better.
- Is protecting your personal assets a top priority? SBA loans offer more insulation.
- Are you funding recurring or flexible expenses? HELOCs provide reusability.
Both tools can help you grow your business, but they serve distinct financial roles. Evaluate your short-term and long-term needs before choosing.
Choose the right path for your business financing
SBA loans and HELOCs both offer useful routes to secure capital, but they come with different costs, timelines, and risks. A HELOC gives you fast, flexible access to your home equity, which is ideal for short-term or recurring needs.
An SBA loan provides stability, longer terms, and a clear separation between personal and business finances.
Ready to unlock your home’s potential to support your business goals? Find out how your home equity compares to SBA loan options.
FAQs: HELOC vs. SBA loans
Q: Can I use a HELOC to fund a business?
A: Yes. You can use HELOC funds for any purpose, including business expenses. However, you must be comfortable using your home as collateral and be responsible for repayment.
Q: What credit score do I need for an SBA loan?
A: Most SBA lenders require a personal credit score of 680 or higher, though requirements vary by lender and loan type. Strong business financials also play a role in approval.
Q: Which is faster to get: a HELOC or an SBA loan?
A: A HELOC typically funds in 1–3 weeks, while SBA loans take 4–8 weeks or more due to extensive documentation and federal guidelines.
Q: What are the risks of using a HELOC for business?
A: The primary risk is personal liability. If your business cannot repay the loan, you’re still responsible for it, and defaulting can result in losing your home.
Q: Can I apply for both an SBA loan and a HELOC?
A: Yes. You can pursue both options as long as your income and assets support the debt. Be sure to understand each loan’s terms and how they impact your overall financial picture.
