HELOC vs HEI: Which Is Right for You?

For many business owners, their biggest asset isn't their business—it's their home. Tapping into home equity can be a smart way to fund growth without high-interest unsecured loans. But how do you do it?

Two popular options are the Home Equity Line of Credit (HELOC) and the newer Home Equity Investment (HEI). While both give you access to cash, they work in fundamentally different ways. Here is how to decide which is best for you.

What is a HELOC?

A HELOC is a revolving line of credit secured by your home. It works much like a credit card: you have a limit, you can borrow against it as needed, and you make monthly payments on the amount you borrow.

Pros of HELOC:

• Flexibility: Draw funds only when you need them.
• Lower Rates: Typically lower interest rates than credit cards or personal loans.
• Interest Only: Many HELOCs allow interest-only payments during the draw period (usually 10 years).

Cons of HELOC:

• Monthly Payments: You must make payments immediately upon borrowing.
• Credit Impact: High utilization can lower your credit score.
• Variable Rates: Interest rates can rise, increasing your payments.

What is an HEI?

A Home Equity Investment (HEI), also known as a shared equity agreement, is not a loan. Instead, an investor gives you a lump sum of cash today in exchange for a share of your home's future appreciation. There are no monthly payments.

Pros of HEI:

• No Monthly Payments: Since it's not a loan, there is no monthly bill to worry about.
• Easier Qualification: No income or DTI requirements since there are no payments.
• Credit Friendly: Doesn't show up as debt on your credit report.

Cons of HEI:

• Equity Share: You are giving up a portion of your home's future value.
• Lump Sum: You typically get all the cash at once, rather than a line of credit.
• Settlement: You must pay back the investment plus the appreciation share at the end of the term (usually 10-30 years) or when you sell.

Which Should You Choose?

Choose a HELOC if: You want flexibility, have good credit, and can afford monthly payments. It's great for ongoing renovation projects or as an emergency fund.

Choose an HEI if: You need cash now but can't afford another monthly bill, or if your income is irregular (common for self-employed business owners). It's ideal for clearing debt or funding a business without adding overhead.

At Nexa Capital Solutions LLC, headquartered in Los Angeles, we help homeowners across the US and Canada leverage their equity to build wealth. Contact us today to see how much you can access.