Why Entrepreneurs Are Using Home Equity to Fund Their Businesses

To start or grow a business, you need capital. And for many entrepreneurs, securing that capital through traditional channels has become an increasingly frustrating exercise — pushing more homeowners to consider using their home equity to fund their business instead.

For homeowners, there's a compelling option that's often hiding in plain sight: their hard-earned home equity. And a growing number of entrepreneurs are starting to think about that equity — not just as a financial safety net, but as a strategic tool, a way to fund the business they're building without the downsides of traditional business financing.

Here's why the math is pushing more entrepreneurs toward using their home equity, the real challenges of business loans, and why a home equity investment (also sometimes referred to as a home equity agreement) may be a good fit for business owners who are navigating unpredictable income and tight cash flow.

Below, we'll cover:

• The real challenges of getting a business loan
• Why home equity has become a key resource for homeowners
• The specific advantages of a home equity investment for entrepreneurs
• Why financially-savvy business owners are rethinking the cost of capital
• Stories from real homeowners who've funded their businesses with their home equity

The Business Loan Landscape Is Tougher Than It Looks

The narrative around small business lending sounds encouraging on the surface; there are SBA loan programs, online lenders, credit unions, and community banks all ostensibly serving entrepreneurs. In practice, however, the experience is often quite different.

According to the Federal Reserve's 2024 Small Business Credit Survey, the rising costs of goods, services, and wages remained the most common financial challenge named by small businesses, with 75% of firms identifying it as a concern. More than half reported challenges with paying operating expenses, and 51% cited uneven cash flows. These are the exact conditions that make lenders nervous — and make traditional loan approval harder to secure.

The numbers reflect this perspective. In 2024, only 44% of small business applicants received full loan approval from large banks. Even at small banks — which are generally the most favorable lending environments for small businesses — the full approval rate was only around 52%. And 76% of lenders cited borrower financials as the most common reason for denying a loan, followed by credit history and insufficient collateral.

For early-stage or scaling businesses, the hurdles multiply. 44% of small businesses didn't even apply for a loan because they felt they wouldn't qualify or would be denied. That's nearly half of small business owners taking themselves out of the running before they've even started.

And the trend is moving in the wrong direction. The Federal Reserve's data shows this marked the thirteenth consecutive quarter in which lenders reported tightening credit standards for small business loans as of Q4 2024, due to worsening economic outlook and reduced risk tolerance.

The self-employed problem

For entrepreneurs specifically — rather than established businesses with predictable revenue — traditional lending creates a particularly frustrating paradox. The very financial behaviors that can help business owners succeed (maximizing deductions, reinvesting revenue, managing variable income) are the same ones that make lenders hesitant.

Self-employed borrowers who apply for home equity loans or HELOCs typically face stricter qualifications, a more thorough underwriting process. They may need to supply two or more years of self-employment income history to prove repayment capacity. If a business owner's tax returns don't cleanly reflect actual income — because of legitimate write-offs and expense deductions — their reported income on paper can significantly understate their real financial position.

Self-employed borrowers often struggle to qualify for traditional home equity loans because, due to deductions and write-offs, their tax returns don't accurately reflect their current financial standing. The tools of smart tax planning become obstacles to financing.

For better or worse, timing matters. If you want to apply for traditional home equity financing as an entrepreneur, you'd ideally need to do so before quitting your day job, but before launching your business — when you still have W-2 income to show a lender. And most business owners don't have that luxury.

Meanwhile, Home Equity Has Never Been More Valuable

While business lending has tightened, homeowners have been building equity at a remarkable rate. U.S. mortgage holders carried a record $17.6 trillion in home equity entering Q2 2025, with $11.5 trillion of that considered "tappable," or available to borrow against while maintaining a 20% equity cushion. The average homeowner with tappable equity has approximately $212,000 available.

That's a significant amount of potential business capital sitting untouched for many homeowners — who have collectively tapped just 0.41% of available equity as of Q1 2025. For entrepreneurs who own homes and are struggling to access traditional business financing, that equity represents an alternative path that's worth considering.

Why a Home Equity Investment Works Differently for Entrepreneurs

Most conversations about tapping into home equity focus on loans and lines of credit — products that, as we discussed, carry their own set of income documentation requirements and monthly payment obligations. But there's another option that may fit the specific financial profile of many entrepreneurs more directly: a Hometap home equity investment.

Here's what makes it structurally different — and why those differences matter for business owners.

No monthly payments

A home equity investment gives you access to a lump sum of cash in exchange for a share of your home's future value. There are no monthly payments and you settle the investment through a home sale, a buyout using savings, or a refinance by the end of the 10-year effective period.

Monthly payments on a business loan or HELOC create an immediate cash flow obligation that has to be met, whether the business is in a strong month or a difficult one. A home equity investment doesn't add a line item to your monthly expenses, and that freed-up cash flow can go directly into your business. As an entrepreneur, this can be a significant benefit.

No income requirements

Because a Hometap home equity investment isn't a home equity loan, the approval criteria differs from that of a traditional bank. The focus is on your home's equity and value — not on the consistency of your W-2 employment history or your reported income on your tax returns. This means that if you’re a self-employed entrepreneur who has maximized deductions, or who’s just 18 months into building a business, you aren’t automatically disqualified.

This can make a huge difference for homeowners who have built real wealth through their home, but whose income profile on paper might not match the clean narrative lenders prefer.

Flexible use of funds

Like other home equity products, a Hometap home equity investment doesn’t place any restrictions on how you use the funds. Whether you need capital to hire your first employees, purchase equipment, build out a location, fund inventory, launch a marketing campaign, or simply create a runway that allows you to focus full-time on the business, the funds are yours to put toward anything your business requires.

Thinking Differently About the Cost of Capital

For financially savvy entrepreneurs, the conversation about home equity isn't just about access — it's about what economists call “the cost of capital,” meaning the actual expense of getting your hands on money to run and grow your business.

Traditional business loans and alternative lenders can carry high interest rates. The average small business bank loan interest rate ranged from 5.75% to 11.91% in Q2 2024, and alternative lenders with faster approval times often charge considerably more. Add in the impact of monthly debt service on cash flow — that’s money leaving the business every month before you've had a chance to use it — and the true cost of conventional financing becomes clearer.

A home equity investment does have a cost, but it’s a share of your home's future appreciation. Whether that trade-off makes sense depends on your specific situation — how much your home is likely to appreciate, how your business is expected to perform, and how valuable cash flow flexibility is to you in the near term. This is a calculation worth making carefully, with your financial advisor.

For entrepreneurs, the right question isn't just "What will this cost me in fees?" — it's "What’s the full economic impact of each financing option on my ability to build the business?" When viewed through that lens, the no-monthly-payment structure of a home equity investment can look quite different from a conventional home equity loan.

Home equity is an asset you've already built. Using it strategically — rather than letting it sit untouched while struggling to access capital through channels that weren't designed with you in mind — may be a good option.

Real Homeowners Who Made It Work

The best argument for any financial strategy isn't a statistic — it's a real person who used it successfully. Hometap homeowners have used their home equity investments to launch restaurants, fund businesses, expand companies, build inventory, and buy the equipment that allowed them to compete at a higher level.

Read their powerful stories here — and see how they were able to achieve their financial goals.

Their experiences also reflect what the data shows: for entrepreneurs who own homes, equity can be the bridge between a business that's constrained by capital and one that has room to grow.

Is a Home Equity Investment Right for Your Business?

There's no universal right answer. A home equity investment is one financing option among many, and the best choice for you depends on your equity, business funding needs, and personal risk tolerance.

What an HEI can offer — that most other options can't — is funding without the monthly cash flow constraint, qualification criteria that don't penalize entrepreneurs for having nontraditional income sources, and the flexibility to put the funds exactly where the business needs them.

If you're a homeowner with equity and a business you're trying to build, it's worth finding out what a Hometap Investment could look like for your situation.

See if you pre-qualify for a Hometap investment in seconds.

Frequently Asked Questions About Using Home Equity to Fund a Business

Can I use home equity to start or grow a business?

Yes. Home equity products — including home equity loans, HELOCs, and home equity investments — can all be used to fund business expenses. With a Hometap home equity investment, there are no restrictions on how you use the funds.

What is the difference between a home equity investment and a business loan?

A business loan is a traditional product that requires monthly principal and interest payments, and income documentation. A Hometap home equity investment provides a lump sum of cash in exchange for a share of your home's future value, with no monthly payments and no income history requirement. You repay when you settle the investment — through a home sale, savings buyout, or refinance — within the 10-year effective period.

Why is it hard for self-employed people to get home equity loans?

Traditional home equity loans and HELOCs require lenders to verify income, typically through tax returns or W-2s. That means if you’re self-employed and your tax returns reflect significant write-offs, you may appear to have lower income than you actually earn, making qualification challenging. A home equity investment evaluates your application based on your home's equity rather than your income history.

Does a home equity investment affect my monthly cash flow?

No. Because there are no monthly payments associated with a Hometap home equity investment, it does not add to your monthly expenses, which can be helpful if your income fluctuates month to month.

How much home equity do American homeowners have available right now?

As of Q2 2025, U.S. mortgage holders carried a record $17.6 trillion in home equity, with approximately $11.5 trillion considered "tappable" — meaning available to borrow against while maintaining a 20% equity cushion. The average homeowner with tappable equity has roughly $212,000 available.

How hard is it for small businesses to get approved for a loan?

According to the Federal Reserve's 2024 Small Business Credit Survey, only 44% of small business applicants received full loan approval from large banks, and 76% of lenders cited borrower financials as the most common reason for denial. Lenders also reported tightening credit standards for thirteen consecutive quarters as of Q4 2024.

What are the risks of using home equity to fund a business?

The primary risk is that if you’re unable to settle the investment at the end of the effective period through a sale, refinance, or buyout, it could result in consequences for your home. It's important to enter any equity transaction with a clear plan for repayment and a realistic assessment of your business and financial situation. Always consult a financial advisor before proceeding.

Tap into your equity with no monthly payments. See if you pre-qualify for a Hometap Investment in seconds.