Using a HELOC as a Small Business Owner

Many small business owners find themselves bootstrapping their business using personal savings, personal credit cards, and maybe even tapping into a home equity line of credit (HELOC).  Since HELOCs are secured by an asset, they are generally cheaper and easier to obtain than a loan for a brand new business.

To keep things clean, having the HELOC in your business' name is ideal. But if the HELOC was taken out personally, the interest for the amounts used to fund your business may be tax deductible according to the IRS' tracing rules. It is imperative to have clean books to make sure you can allocate the debt and interest to your business accordingly.

The One Big Beautiful Bill Act restored the interest deductibility cap to be 30% of EBITDA (earnings before interest, tax, depreciation, and amortization) instead of EBIT (earnings before interest and tax). This change may help with some important decision making you have for how to fund your business while maximizing the tax advantages available to you.

At Apollo Accounting and Advisory, we don't just help our clients plan for their taxes. We help make sure the financial reporting is accurate and timely so that these decisions can be made easily. Are you able to allocate HELOC advances to your business easily to comply with the IRS' tracing rules? Do you have a good handle on your projected EBITDA to calculate what your interest expense cap would be? If not, contact us here for a free consultation.