HELOC Accounting

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December 13, 2024

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Seattle, WA, USA

A few years ago I secured a HELOC at PRIME minus 66 bps (7.34% today). My wife is seeking to buy a business for ~$1M where we will put ~$200K from our cash and ~$800K in debt (small portion being a seller note). We are debating between taking a SBA 7A loan or drawing down on my HELOC for ~$700K.

Question: Is it possible to tie my HELOC (it is under my name) to the company she buys from an accounting perspective so we can deduct the interest and have clean financials?

Bonus Question: The primary advantage of the SBA 7a loan is that you have another institution that values the business and holds you accountable. The downside is that the SBA 7a is more costly (PRIME plus 200-300bps). Are there any other considerations?


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Reply by a searcher
from Texas A&M University in Coppell, TX, USA
Given that both loans are variable and tied to prime, the HELOC will obviously save you more on interest. What's potentially even better is that some HELOCs have a 15 year payback period as opposed to a 10 year amortization on the SBA7a (sans real estate). That would further lower your DSCR or allow you to buy something larger, not that I'm recommending it.

Personally, I have a HELOC but do not plan to use the full draw down (unless the draw period closes soon afterwards) to the point that Goran made. I would rather put more onto the SBA loan and leave some of the HELOC available for emergency liquidity post close.
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Reply by a lender
in Ponte Vedra Beach, FL 32082, USA
Using your HELOC puts the entire debt on your personal credit, which can impact your ability to take out future debts. The SBA 7a option generally has the best structure for business acquisition over the personal debts. The rates I can offer on a business acquisition start at wsj prime plus 0.75% fixed rate. I am happy to have a call together, my cell is###-###-#### and email is redacted You’re welcome to use my Calendly link below as well. https://calendly.com/bturner-thebancorp/45min
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