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Having a business idea and not knowing how to fund it can be a daunting task, but there may be one option that entrepreneurs are forgetting about—drawing from home equity. According to a recent report by the National Association of Homebuilders (NAHB) citing new data from the U.S. Census Bureau, home equity has been used to start 284,618 or 7.3 percent of all businesses in the U.S.
The Annual Survey of Entrepreneurs (ASE) collects economic and demographic data on different aspects of business ownership in major U.S. industries for three years beginning in 2015. What they found is that six industries in particular use home equity at higher rates than others.
Accommodation and food services (10.3 percent), other services with the omission of public administration (9.8 percent), retail trade (9.7 percent), and manufacturing (9.3 percent), however also experience lower rates of profitability and average $50,000 to $99,000 worth of funding as startup capital. Also on the list, real estate and rental and leasing came in with 4.9 percent of business pulling from home equity and construction at 6.9 percent.
The survey also took into account demographic data when looking at funding from home equity. Women owned businesses (60,200 firms) were slightly more likely to use home equity than men (162,086 firms), coming in at 7.8 percent and 6.6 percent respectively. Of those that had equal ownership (61,311), 10.8 percent used home equity.
Breaking the data down by race, Pacific Islander or Hawaiian business owners (371 firms) used home equity 10 percent of the time. American Indian or Alaskan Native (1,769 firms) had 9.1 percent use home equity, Asian (30,794 firms) at 9.0 percent, Black or African-American (5,485 firms) at 7.8 percent, and White (241,574 firms) at 7.3 percent.
According to NAHB, home equity plays a substantial role in U.S. business, but for women and racial minorities it’s even more imperative, particularly with African-American. Though the Census Bureau’s Housing Vacancy Survey shows African-American’s having below average rates of homeownership, home equity is allowing them to have a slightly above average showing in funding entrepreneurship.
