I know the title of this post seems self explanatory - choosing between SBAs and HELoans for startup capital, but I want to lay out my whole situation to get the best advice.
I've been approved for a home equity loan for the amount I need to launch my business - could fund in a week and start making major purchases with the bank's letter of approval. It's 65k, 7%, 30 year term, no prepayment penalties, so the min payment is $429 monthly but in my business plan I've budgeted to put aside much more monthly to pay off in 6-7 years. (The logic here is I want to get rid of the majority of this debt before a planned 5 year expansion at which point I would look for a biz line of credit.)
On the other hand, I'm working on an SBA microloan with a community organization. By their own admission, they're swamped, so I don't know how long it would take me to get the money I need, especially given the normal pace of nonprofits. Also an SBA micro taps out at $50k - although they've told me we can get the rest with various grants.
I've been advised not to use a home equity loan for startup because of the risk - but the major orgs that do SBA's here have told me their underwriting teams would want to put a lien against the house anyway. Also, $65,000 at 7% interest (SBA rate) for 6 years is a minimum ~1200 payment a month.
So with a $1200 vs a $400 payment, why would I use an SBA loan instead of a home equity?