AS TRADITIONAL BUSINESS financing has become more difficult to access and slower to secure, a growing number of entrepreneurs are recognizing that the equity accumulated in their homes represents one of the most flexible and readily available forms of capital at their disposal.
WHEN SARAH CHEN needed $150,000 to purchase inventory for her growing e-commerce business last spring, her bank turned her down despite two years of profitability and projected revenues of $800,000. The company she had built, which sold ergonomic office accessories, simply did not meet the institution’s requirement for three years of financial statements, and she lacked the type of collateral her lender was seeking.
The timing could not have been worse. A purchase order from a major retailer was sitting on her desk, requesting 5,000 units delivered within 90 days. She had already negotiated terms with her supplier and confirmed that the margins would work, but without access to capital, she had no way to fulfill what could become her company’s most important account.
Her solution came from an unexpected place. The three-bedroom home she had purchased in Kitchener six years earlier had appreciated significantly, and a mortgage refinance allowed her to unlock $180,000 in equity. The transaction closed in under three weeks, and she delivered the order that ultimately became the turning point for her business.
Chen’s experience reflects a broader trend across Southwestern Ontario and the province as a whole. As traditional business financing has become more difficult to access and slower to secure, a growing number of entrepreneurs are recognizing that the equity accumulated in their homes represents one of the most flexible and readily available forms of capital at their disposal.
The lending environment for small businesses has changed considerably over the past several years. After an extended period of relatively accessible capital, banks and alternative lenders have implemented stricter underwriting standards and extended their approval timelines, creating real challenges for business owners who need to move quickly.
According to research from the Canadian Federation of Independent Business, the share of small businesses needing financing rose from 35 percent in 2012 to 58 percent in 2022, yet access has become harder, not easier. The same research found that only 77 percent of micro businesses were approved for financing, compared to 94 percent of mid-sized firms. Smaller businesses face higher interest rates as well, paying an average of 2.1 percent above the prime rate.
Perhaps most telling is what lenders are demanding as security. The CFIB data shows that 52 percent of micro businesses had to make a personal guarantee to be approved for financing, and 29 percent needed to pledge their primary residence as collateral. In other words, even businesses that manage to secure traditional financing are often putting their homes on the line anyway.
The practical impact for business owners is straightforward. The capital they need to hire staff, purchase equipment, secure inventory, or expand into new markets has become harder to obtain at precisely the moment when strategic investment could make the greatest difference.
Marcus Thompson, who operates a commercial cleaning company in London, spent four months navigating the application process with his bank before ultimately being declined.
By the time he received the final decision, the acquisition opportunity he had been pursuing was no longer available. The experience left him frustrated not only with the outcome but also with the time and energy he had invested in a process that never had a realistic chance of success.
Against this backdrop, home equity financing has emerged as a practical alternative for business owners who need capital and cannot afford to wait for traditional lending channels to deliver it.
The underlying math explains much of the appeal. Ontario homeowners who purchased property before 2020 have, in many cases, seen substantial appreciation in their home values, even after accounting for the market corrections in 2022 and 2023. According to data tracked by the Canadian Real Estate Association, the average house price in Ontario rose from approximately $550,000 in 2018 to over $870,000 by 2024, representing gains of more than 50 percent over that period. Even with recent softening, owners who purchased during that window continue to hold significant equity positions.
This equity can be accessed through a mortgage refinance, which involves replacing an existing mortgage with a new, larger one and receiving the difference as cash. Most lenders will extend financing up to 80 percent of a home’s appraised value, minus the outstanding mortgage balance. For a homeowner with significant equity, this can translate into a six-figure sum to deploy in a business venture.
The advantages over traditional business financing are meaningful. Interest rates on residential mortgages are typically lower than those on business loans or lines of credit, reducing the ongoing cost of capital.
According to Finder Canada’s analysis of business lending rates, the lowest business loan interest rates range from 4.7 to 6 percent for borrowers with strong credit, while many small businesses pay rates closer to prime plus 3 to 5 percent. Residential mortgage rates, by comparison, often come in lower, particularly for borrowers with strong credit profiles and significant equity.
The approval process, while still requiring documentation and underwriting review, moves considerably faster than commercial lending applications. And because the loan is secured against a tangible asset with clear market value, lenders are often more willing to approve requests that might not meet the criteria for unsecured business credit.
Perhaps most importantly, the capital itself comes without the restrictions that often accompany business financing. There are no covenants requiring the borrower to maintain certain financial ratios, no limitations on how the funds can be used, and no periodic reviews that could result in the credit being pulled back. Once the refinance closes, the business owner has full discretion over how to deploy the capital.
For business owners who have not previously gone through a refinance, the process is relatively straightforward and typically takes between two and four weeks from application to funding.
The first step is to determine how much equity is available and find a lender willing to provide the new mortgage. Working with a mortgage broker can be particularly valuable at this stage, as brokers have relationships with multiple lenders and can identify options that might not be apparent to someone approaching banks directly. The broker will help assemble the necessary documentation, which typically includes recent pay stubs or business financial statements, tax returns, and information about the current mortgage.
Once the application is submitted, the lender will order an appraisal to confirm the property’s current market value. This appraisal determines the maximum amount that can be borrowed under the lender’s loan-to-value guidelines. Assuming the numbers work and the borrower meets the lender’s qualification criteria, the lender will issue a formal mortgage commitment outlining the terms of the new loan.
At this point, the legal work begins. A real estate lawyer coordinates the documentation required to discharge the existing mortgage and register the new one. This includes reviewing the mortgage documents to ensure the terms match what was agreed upon, conducting title searches to confirm there are no unexpected encumbrances on the property, and liaising with both the existing lender and the new lender to coordinate the flow of funds on closing day.
According to Zachary Soccio-Marandola, a Toronto real estate lawyer who handles residential refinances, the speed of the process often surprises business owners accustomed to the drawn-out timelines of commercial lending. “A standard mortgage refinance can close in two to four weeks once you have lender approval,” he notes. “For a business owner who needs capital to act on an opportunity, that speed makes all the difference compared to waiting months for a business loan that may or may not get approved.”
The final step is the closing itself, which is increasingly conducted via virtual signing appointments rather than requiring an in-person visit to a lawyer’s office. On closing day, the lawyer registers the new mortgage, the existing mortgage is discharged, and the net proceeds are deposited into the borrower’s account, ready for deployment into the business.
While home equity can provide a flexible and accessible source of business capital, the decision to tap it should be carefully considered. Unlike a business loan that is secured against business assets, a mortgage refinance puts the family home on the line. If the business venture fails and the borrower cannot make mortgage payments, the consequences extend beyond the business itself.
This risk profile means that home equity financing is generally most appropriate for business owners who have a clear and specific use for the capital, realistic projections about the return that use will generate, and sufficient confidence in those projections to accept personal exposure. Using home equity to fund a well-defined expansion with strong unit economics is very different from using it to cover operating losses in a struggling business.
Cash flow planning is essential. A refinance will increase the monthly mortgage payment, and that increase needs to be sustainable regardless of whether the business investment delivers the expected returns. Conservative business owners will stress-test their projections, asking what happens to their ability to service the mortgage if revenues come in 20 or 30 percent below forecast.
The financing structure also matters. A full refinance makes sense when the business owner knows exactly how much capital is needed and wants to lock in a fixed rate on the entire amount. For situations where capital needs are less predictable or may be spread out over time, a home equity line of credit can provide more flexibility. With a HELOC, the borrower has access to a predetermined credit limit and pays interest only on the amount actually drawn, which can reduce carrying costs during the early stages of a business initiative.
Tax treatment is another consideration worth discussing with an accountant. In some circumstances, interest paid on funds borrowed for business investment purposes may be tax-deductible, effectively reducing the cost of capital. The specific rules depend on how the funds are used and on the borrower’s overall financial situation, so professional advice is important before assuming any particular tax treatment will apply.
To understand the practical appeal of home equity financing, consider a hypothetical example based on common scenarios.
A business owner in the London area purchased a home in 2017 for $450,000 with a $360,000 mortgage. After seven years of payments and market appreciation, the home is now worth $750,000, and the mortgage balance has been paid down to $280,000.
Under standard lending guidelines allowing up to 80 percent loan-to-value, this owner could qualify for a new mortgage of up to $600,000. After paying off the existing $280,000 balance, that leaves $320,000 in accessible equity.
If the business owner needs $150,000 to fund an expansion, refinancing to a new mortgage of $430,000 would accomplish this while keeping the loan-to-value ratio at a conservative 57 percent. At current mortgage rates, the monthly payment increase might be in the range of $800 to $1,00,0 depending on the specific terms, and the business would need to generate sufficient returns to justify that additional carrying cost.
Compare this to the alternatives. A business line of credit, if available, might carry an interest rate two to three percentage points higher than a mortgage. A term loan from an alternative lender could be even more expensive and might require personal guarantees anyway. And equity financing, while avoiding debt entirely, comes with dilution and loss of control that many business owners are reluctant to accept.
For entrepreneurs who have built up equity in their homes and have a productive use for capital, the mortgage refinance option often represents the most cost-effective path forward.
The growing use of home equity for business purposes reflects broader changes in both the real estate market and the small-business financing landscape.
On the real estate side, the significant price appreciation that occurred across Ontario between 2015 and 2022 created a generation of homeowners with substantial paper wealth that had previously been difficult to access. While home prices have moderated from their peaks, with the average Ontario home selling for approximately $820,000 in late 2025, values remain well above where they were five or ten years ago, and owners who purchased during that period continue to hold significant equity positions.
On the financing side, the pullback in traditional small-business lending has created a gap that home equity is well positioned to fill. Banks have not abandoned small business lending entirely, but they have become more selective about which borrowers they will serve and more demanding about the terms they require. For business owners who fall outside the increasingly narrow criteria for traditional approval, alternative sources of capital become necessary rather than optional.
This dynamic is unlikely to reverse quickly. The factors that prompted lenders to tighten their standards, including economic uncertainty and the need to manage balance-sheet risk, remain in place even as interest rates have stabilized. Business owners who want to grow cannot simply wait for the lending environment to become more accommodating.
At the same time, the Ontario real estate market continues to evolve. For homeowners who have not recently assessed their equity position, the current moment may represent an opportunity to understand what capital is actually available to them. Even for those who have no immediate plans to tap that equity, knowing the number provides useful information for strategic planning.
For business owners considering whether to use home equity for business purposes, the decision ultimately comes down to a clear-eyed assessment of the opportunity, the risks, and the alternatives.
The opportunity should be specific and well-defined. Vague notions of wanting to “invest in growth” are not sufficient justification for risking a family home. The best candidates for home equity financing are business owners who have identified a particular use for capital, modeled out the expected returns from that use, and determined that those returns exceed the cost of the borrowed funds by a meaningful margin.
The risks should be acknowledged and planned for. What happens if the investment does not deliver the expected returns? Can the household absorb the higher mortgage payments from other income sources? Is there a contingency plan if the business encounters unexpected difficulties? These are uncomfortable questions, but they are far better addressed before the refinance closes than after.
The alternatives should be genuinely explored. Home equity is often the most accessible form of capital, but it is not the only option. Business owners owe it to themselves to understand what traditional financing might be available, what the terms would look like, and whether the additional time required to secure it would meaningfully impact the opportunity they are pursuing.
For those who work through this analysis and conclude that home equity financing makes sense, the process of accessing that capital is more streamlined than many expect. With the right professional guidance from a mortgage broker and real estate lawyer, funds can be in hand within weeks rather than months, ready to be deployed into the opportunity that prompted the decision in the first place.
In an environment where small business financing has become harder to obtain through traditional channels, the equity accumulated in a home may be the resource that allows an entrepreneur to say yes to an opportunity they would otherwise have to pass up. For Ontario business owners sitting on significant home equity and facing a capital need they cannot meet through other means, that possibility is worth understanding.
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