Short YouTube transcript excerpt where Mike Andes discusses using a home equity line of credit (HELOC) versus credit cards to fund a business. He compares interest costs (HELOC much lower than credit cards), highlights that using a HELOC places personal (house) collateral at risk, and frames the decision as depending on personal risk tolerance and stage of the business.
Bottom line, if you have a home equity line of credit and you're using it on the business, if anything goes around in the business, you still have that debt against your house. What's the monthly cost right now on the HELOC? It's probably just interest only about $900. Okay, not so bad. Question of whether or not it is good or bad to use at home equity line of credit in the business really comes down to your personal risk tolerance. Are we tapped on the HELOC and the credit card? Like those can't really go up anymore. Yeah, you can see this by the fact they have $125,000 on an American Express and they're paying 2 to $3,000 a on the other hand, they have a home equity line of credit for $145,000 and they're only paying $900 a month in interest. This is the difference between the interest rate that you're going to spend on a credit card, 15 to 20% versus a home equity line of credit, which might be 4, 5, 6, 7, 8% in comparison to a credit card. And so I'm not saying don't use it. Just know that you are increasing the amount of risk because if something bad happens to the business now your house is on the line. But it's certainly something I have used when I was in the same stage when I had equity in the house is like I got to use it. Like if the business goes down, I'm going bankrupt. So I might as use the home equity that I do have to try to get the business to work.
