Pros/Cons of 10 year HELOC @ 7.75% vs. 10 year SBA @ 11.5%

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by a searcher from Columbia University - Columbia Business School
in Leesburg, VA, USA

2yrs ago

Pros/Cons of 10 year HELOC @ 7.75% vs. 10 year SBA @ 11.5%

Share your thoughts on pros/cons of a self funded searcher doing a 10 year SBA loan redacted w personal guarantee vs. doing a bigger equity infusion that is funded via a 10 year HELOC redacted on personal residence. The house is collateral either way in the purchase of the business via the personal guarantee on SBA or via the HELOC. Is risk profile quite similar or am I missing something? If the former, then what are some additional considerations here on top of the math exercise of personal HELOC interest expense deductibility vs. SBA interest tax deductibility and the downstream impacts on cashflow and company valuation?

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reply by a searcher 1yr ago
from IESE Business School in Austin, TX, USA

This thread is super helpful, thanks. I was also thinking of a similar strategy: financing purchase with a regular cash downpayment + using a cash out re-finance mortgage on a home that is already paid off. (Cash out re-fi rates being slightly lower than HELOC). I think the challenge with cash-out refi is it takes longer to close (?). And you have to take out a set amount, whereas HELOC is only as much as you need.

I was aware of the disadvantage that these loans are not deductible from the business - was not aware of how large an impact that was. Will have to create a model for that.

^redacted‌ did you consider a cash out re-fi instead of a HELOC?

reply by a searcher 1yr ago
from Columbia University in Leesburg, VA, USA

in case folks were'n't aware, I'll post this blurb from a recent PNC HELOC flyer... For tax years 2018 through 2025, HELOC interest is tax deductible for those who itemize tax deductions if the funds are used specifically for the purpose of improving your home.[3] Unless current tax laws are changed, HELOCs secured after 2025 will offer tax-deductible interest for those who itemize deductions, regardless of how the funds are used. Consult with a tax adviser about your unique financial situation.