Is a Personal Line of Credit or HELOC Better for Financing a Business Launch?

Last updated: June 2025

Starting a business is one of the more exciting—and financially demanding—steps you can take. 

Whether you’re building an online store, opening a local service business, or launching a consulting practice, you’ll likely need startup capital to get off the ground. 

Many aspiring entrepreneurs compare two flexible financing tools: a personal line of credit vs. a home equity line of credit (HELOC).

But which one is the better fit for your business? In this article, we’ll look at the pros, cons, and key differences of a personal line of credit vs HELOC so you can make an informed funding decision that aligns with your goals.

What is a personal line of credit?

A personal line of credit is an unsecured revolving credit line provided by a bank or credit union based on your income, credit history, and financial profile.

Unlike a personal loan, which offers a one-time lump sum payment, a personal line of credit allows ongoing borrowing and repayment within an approved limit.

Key characteristics of a personal credit line

• No collateral is required
• Interest rates are usually adjustable and tend to be higher than secured loans
• Credit limits often range from $5,000 to $50,000
• Funds can be used for any purpose, including business expenses

Approval generally depends on your credit score (typically 680+), income stability, and debt-to-income ratio.

What is a HELOC?

A HELOC is a specific type of revolving credit that uses your home’s equity as collateral. If your home is worth more than what you owe on your mortgage, you may be eligible to tap into that difference.

Key characteristics of a HELOC

• Requires equity in your home (typically at least 15–20%)
• Interest rates are lower than unsecured options
• Larger credit limits are available (often $50,000–$250,000)
• The draw period usually lasts between five and ten years, with interest-only payments
• Your home serves as collateral

Because the HELOC is backed by a physical asset, lenders view it as less risky, translating to better rates and terms for borrowers.

Explore what a HELOC is and how it works.

Key differences between a personal line of credit vs. HELOC

• Collateral Required
  • Personal Line of Credit: No collateral required
  • HELOC: Yes — secured by your home
• Interest Rate
  • Personal Line of Credit: Higher (typically 8–15%)
  • HELOC: Lower (variable, often 6–10%)
• Credit Limit
  • Personal Line of Credit: Lower (usually under $50,000)
  • HELOC: Higher (based on available home equity)
• Qualification Factors
  • Personal Line of Credit: Based on credit score and income
  • HELOC: Based on equity, home value, and creditworthiness
• Use Case Flexibility
  • Both options: Funds can generally be used for any purpose
• Risk
  • Personal Line of Credit: No risk to personal assets
  • HELOC: Risk of foreclosure if payments are missed
• Tax Benefits
  • Personal Line of Credit: Rare or none
  • HELOC: Possible if funds are used for qualifying home improvements or business expenses*

Both can be used to fund business expenses, but they serve different borrower profiles and goals.

When is a HELOC the better choice?

If you’re a homeowner with substantial equity and plan to launch a capital-intensive business, such as a service-based company, retail shop, or mobile business, a HELOC may be your best option. 

HELOCs offer:

• Lower interest rates, which reduce your cost of capital
• Larger credit limits, ideal for equipment, vehicles, and operating costs
• Flexible access, allowing you to draw only as needed
• Longer draw periods, which are helpful during early, uncertain months
• Interest-only payments during the draw phase

HELOCs are especially useful if you’re not ready to take a full loan but want funding on standby.

When is a personal line of credit a better fit?

For entrepreneurs who don’t own a home or who prefer not to use their property as collateral, a personal line of credit may offer the simplicity and speed needed to kickstart operations.

It’s typically the better option if:

• You need less than $25,000 in startup capital
• You want quick access without a home appraisal
• Your business model is low-cost or digital-first
• You have strong credit and don’t want to risk your home
• Your home lacks sufficient equity to qualify for a HELOC

Personal lines are easier to manage from a risk perspective, though the cost of borrowing may be higher.

Real-world scenario: Using a HELOC to start a business

Hypothetical example: Mark owns a home in Arizona worth $500,000 and still owes $280,000 on his mortgage. 

With over $200,000 in available equity, he qualifies for a $100,000 HELOC through HomeEQ. Mark draws $40,000 to purchase equipment, pay for marketing, and launch a mobile auto detailing business.

Thanks to the HELOC’s lower interest rate and interest-only draw period, Mark keeps his monthly expenses low while he ramps up the business. 

Within the first year, the business becomes profitable, and he begins paying down the principal ahead of schedule—all without tapping into retirement savings or high-interest credit cards.

Considerations and risks for both options

Using a HELOC:

• Risk of foreclosure if you can’t repay
• Variable interest rates may increase over time
• Longer approval timelines due to appraisal and underwriting
• Must have sufficient home equity

Using a personal line of credit:

• Higher rates mean higher monthly payments
• Smaller credit limits may not cover full launch costs
• No asset risk, but lower approval odds if your credit score is under 680
• Could impact your credit utilization ratio

Always consider your risk tolerance, repayment plan, and business cash flow projections before borrowing.

FAQs about personal line of credit vs. HELOC for business use

Can I use a HELOC for business expenses?

Yes. Most lenders, including HomeEQ, do not restrict usage. You can use your HELOC for equipment, marketing, office space, or any startup costs.

Will using a HELOC affect my mortgage?

No. Your first mortgage remains unchanged, but failure to repay the HELOC could put your home at risk.

Is the interest tax-deductible?

Possibly. If you use the HELOC for business purposes, interest may be tax-deductible. Consult your CPA or tax advisor.

Which is easier to get—a HELOC or personal line of credit?

Personal lines of credit may fund faster but require excellent credit. A HELOC requires home equity but offers higher limits and better rates.

Final thoughts: Choosing the right credit tool for your launch

When weighing a personal line of credit vs HELOC, the decision hinges on three factors:

1. How much capital you need
2. How quickly you need it
3. How comfortable you are with risk

If you’re a homeowner with strong equity and a clear plan, a HELOC offers lower costs and more flexibility. 

If you prefer not to tie your business funding to your home, or if you’re starting lean, a personal line of credit can still offer the liquidity you need.

Both tools can work—if you choose the one that fits your launch timeline, business model, and financial goals.

Check your HELOC eligibility online

Explore your home’s equity and see how much you could access, with no pressure and no impact on your credit.

Start your online application today with HomeEQ.