HELOC vs Home Equity Loan

June 13, 2024

by a searcher from University of Phoenix in Tampa, FL, USA

Hey SF Family,

I can find tons of content on SearchFunder for using a HELOC to help with with raising capital for the down payment if using the SBA 7a. I have yet to see anyone bring up a Home Equity Loan as the rates tend to be lower. Are they the same thing? What am I missing?

*Note, I am not using it to avoid a PG, just strictly for a cash withdrawal as I am trying to minimize investor cash. Thanks as always!

- Israel

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Reply by a lender
from California State University, Sacramento in Seattle, WA, USA

Sba equity funds now only have a 1 month seasoning requirement ^redacted‌

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Great question. It really does not matter what product you use. Most people prefer to use a home equity line of credit due to the fact they do not have to have the funds drawn right away and will only have to pay interest on the loan on the amount drawn. However, home equity lines of credit tend to be variable with the prime rate as the basis, so that is ofter higher than a fixed rate equity loan. Usually with a fixed rate equity loan you actually get all of the money out at time of closing. That is perfectly fine to do if you want the money up front and will likely provide you a better fixed interest rate with most lenders. Also keep in mind with a home equity loan, typically you will have a principal and interest payment so there is going to be more debt service versus the home equity line that is interest only. So you will ultimately need slightly more cash flow to support it. Some may argue they would prefer the variable rate with a home equity line in this market because they believe interest rates will go down in the future. It all depends on what you are most comfortable with. So long as the remaining equity in your home is less than 25% of the value, then the SBA does not require the lenders to take it as additional collateral on the loan. If you have any additional questions you can reach me here or directly at redacted Good luck with your decision on which product to use.

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