Home equity for a business in Canada: what lenders allow and how the interest is treated

Short answer: You can often use home equity for a business in Canada, through a refinance, a second mortgage or a home equity line of credit (HELOC), because lenders mainly look at your income, credit and the property, not the business plan. FCAC says you may usually borrow up to 80% of your home's value, or up to 65% as a HELOC ^[1]. The trade-off is serious: your home secures the loan, and you can face foreclosure if you can't repay ^[1]. Interest on money borrowed to earn business income may be tax-deductible, but only with a clear link to the business use ^[3][4].

This guide is for owners of Canadian homes who are considering using their equity to start, buy or fund a business. It's general information; your accountant and a licensed agent can fit it to your situation, OAC.

Three ways to use home equity for a business

Each option has costs, such as appraisal, title search, title insurance and legal fees ^[1]. For a closer look at each one, see our guides to home equity takeout, HELOCs and second mortgage vs HELOC. 8Twelve does not fund second or private mortgages; we arrange them with third-party lenders.

What lenders look at

A home equity loan is underwritten on you and your property. In practice that means:

• Your income. OSFI's B-20 guideline expects federally regulated lenders to verify income from an independent source that is hard to falsify and to consider how stable it is ^[5]. If your income comes from the business itself, expect to provide tax returns and Notices of Assessment; our guide to self-employed refinancing covers the paperwork.
• Your debt ratios. A new loan adds to your payments; see how lenders count them in our GDS and TDS guide.
• The stress test. At a federally regulated lender, a refinance or HELOC is stress-tested, usually at the greater of your rate plus 2% or 5.25% ^[6].
• Your equity and credit. The appraised value, what you owe and your credit history set how much you can borrow and at what rate.

In our experience, some lenders ask what the money is for and won't take certain business purposes, so it's worth saying so up front rather than after approval. Business-owner files can be more complex, and lender policies differ.

Thinking about using your equity for a business? A licensed 8Twelve agent can compare equity options across 65+ lenders, OAC. See equity takeout options

Is the interest tax-deductible?

Possibly. Under the Income Tax Act, interest on borrowed money used for the purpose of earning income from a business or property may be deductible ^[2]. The CRA says it needs a sufficiently direct link between the borrowing and the eligible use, and whether the purpose test is met is a question of fact ^[3]. For business income, the CRA also notes you can deduct interest on money borrowed for business purposes but not on money borrowed for personal purposes, and that mortgage principal repayments aren't deductible ^[4].

What that means in practice, as general information:

• If you borrow $100,000 and spend all of it on business equipment and supplies, the interest on that portion may be deductible.
• If you borrow $100,000 and spend $60,000 on the business and $40,000 on a kitchen renovation, the CRA's link-to-use test points to deducting only the business share. A separate account for the borrowed money makes the trail easier to show.
• The deduction depends on your own tax situation, so ask your accountant before you borrow, not after.

Worked example: $100,000 for a small business

Example (illustrative): a home is worth $900,000 and you owe $400,000 on your mortgage. These numbers are assumptions.

The room is there, but room isn't the same as approval. You'd still have to qualify on income and debt ratios, and the $100,000 would be secured against your home. If the business has a slow year, the payments still come due.

The risks to weigh first

• Your home is the security. FCAC warns of serious consequences, including foreclosure, if you can't pay back what you borrow ^[1].
• Rates can change. A HELOC is variable, so payments can rise.
• Business and household risk are linked. If revenue falls, your personal mortgage costs don't.
• Costs add up. Appraisal, legal and title costs apply, and breaking an existing mortgage early can bring a prepayment penalty. See our refinance costs guide.

Alternatives to consider

• Canada Small Business Financing Program. This federal program works through financial institutions to help small businesses with annual revenues of up to $10 million get term loans and lines of credit, to a maximum of $1.15 million per borrower, which includes up to $1 million in term loans and $150,000 in lines of credit ^[7]. Under the program rules, security is generally taken in the assets being financed and personal guarantees are optional, but lenders must still assess your ability to repay ^[7].
• A separate business loan or line of credit. It keeps the debt in the company's name, though lenders may still ask for personal guarantees.
• A smaller HELOC. A limit you can fully repay from business cash flow can be safer than a large refinance.

Using home equity for a business can work when the amount is sized to the business, you can qualify comfortably and you understand the home is at stake. Talk to your accountant about interest deductibility before you borrow, and compare options, not just rates.

This article is for general information only and isn't financial, legal or tax advice. Rates, products and terms change without notice and are available on approved credit (OAC). The rate and terms you qualify for depend on your individual financial situation, including credit, income, property and loan-to-value. "Best rates" means the most suitable options available for your situation, not a guarantee of the lowest rate. Examples are for illustration only, as of November 13, 2026, and are not an offer. 8Twelve Mortgage arranges mortgages through 65+ lenders and does not lend directly. Licensed across Canada — see our licences.

Consolidating or borrowing against your home may lower your payment but can increase the total interest paid. 8Twelve does not fund second or private mortgages; we arrange them with third-party lenders, and lender and brokerage fees are disclosed in writing before you commit. The examples use assumed values, rates and amounts and are not tax advice; talk to your accountant. Rules checked against FCAC, the CRA, OSFI and the Canada Small Business Financing Program on November 13, 2026.