Home Equity Used to Start Seven Percent of U.S. Businesses

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.—according to a new source of data released recently by the U.S. Census Bureau.

The new data source is the Annual Survey of Entrepreneurs, (ASE), which collects economic and demographic information on businesses and business ownership in all major U.S. industries. The ASE collects data on an annual basis for three years beginning with reference year 2014.

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 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.

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%.

In short, equity in homes not only plays a significant role in providing capital to start U.S. businesses in general, it is especially important in helping women and racial minorities in the U.S. start new businesses.  Home equity even plays a slightly above-average role in helping African-American business entrepreneurs, even though (as the Census Bureau’s Housing Vacancy Survey shows) African-Americans continue to have below-average rates of home ownership.



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