WASHINGTON–Credit unions frequently promote member business loans and home equity loans as separate entities, but new research shows that for many they are one and the same.
According to the Annual Survey of Entrepreneurs released by the U.S. Census Bureau, equity in a home was used as a source of capital to start 284,618 businesses—7.3% of all businesses in the U.S. The ASE collects data on an annual basis for three years beginning with reference year 2014.
While the 2014 ASE shows that the industry average use of home equity as start-up capital lands at 7.3%, six NAICS industries use home equity at higher rates, notably Accommodation and Food Services, Other Services, Retail Trade, and Manufacturing. These industries similarly experience lower rates of profitability, are often not home-based businesses, and on average assemble $50,000 to $99,999 worth of funding as start-up capital, the Census Bureau said.
The ASE measures demographics of company owners alongside economic data like source(s) of start-up capital. Businesses owned by women are more likely than men to use home equity as a source of start-up capital at 7.8% and 6.6%, respectively. Companies with equal male- and female ownership use home equity loans 10.8% of the time, Census said.
By race, white owners leverage home equity loans at the rate of 7.3%, black or African American 7.8%, Asian 9.0%, American Indian and Alaskan Native 9.1%, and Pacific Islander or Hawaiian 10.0%.