The ability to secure high-ticket projects often depends on the availability of flexible financing options. From HVAC installations to major home renovations, the rising cost of materials and labor can make it hard for customers to commit to larger purchases. But one financing solution is growing in popularity and remains a standout option for those looking to diversify their financing offerings and giving merchants and their customers a way to manage big expenses: the Home Equity Line of Credit (HELOC).
For merchants, offering HELOCs can drive higher ticket sales, improve customer satisfaction, and give your business a competitive edge. But why are HELOCs the financing solution of the moment? Let’s break it down.
Due to market realities like rising home values, and low interest rates for those who purchased during COVID, HELOCs have emerged as one of the most flexible and affordable financing solutions available today. Home equity loan counts and amounts increased by 40% and 69% respectively year-over-year in 2024. U.S. homeowners also have a lot of it. As of Q2 2024, the average U.S. homeowner had about $315,000 in total home equity.
HELOCs are gaining traction not just because they provide homeowners with flexible borrowing, but because they offer significantly lower interest rates, currently around 8%, compared to traditional unsecured loans, whose rates can start as low as 7.49%, though more typically sit between 12% and 22%, but can come with steep dealer fees, and credit cards, which typically offer rates above 20%. This difference means more affordable monthly payments for your customers, allowing them to move forward with larger purchases—whether it’s installing a new roof, or finally purchasing that hot tub of their dreams.
Let’s discuss how HELOCs work and why they are beneficial for customers and merchants who are looking to scale their businesses.
What is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving line of credit that allows homeowners to borrow against the equity they’ve built up in their property. The amount available is determined by the difference between the home’s current market value and the outstanding mortgage balance. Unlike a traditional loan, borrowers can withdraw funds as needed, similar to a credit card. With variable interest rates and the ability to borrow over a set period, a HELOC is commonly used for major expenses like home improvements or consolidating debt. And payments are typically made only on the amount borrowed, offering financial flexibility to homeowners.
In addition to their inherent flexibility, there are a few key differences that set HELOCs apart from other financing options:
- Revolving credit
HELOCs allow customers to draw on their line of credit as needed, which is beneficial for unpredictable projects that can come with addendums or change orders, causing costs to balloon.
- Lower rates
HELOCs generally have significantly lower interest rates compared to personal loans and credit cards, which makes them a cost-effective option.
- Flexible payment options
Some HELOCs allow for interest-only payments during the draw period, easing the financial burden on customers, especially during long-term projects.
- Tax deductions
When used for home improvement purposes, the interest paid on HELOCs may be tax-deductible, giving homeowners another financial incentive.
For merchants, these benefits make HELOCs an attractive option to offer customers, particularly for more significant purchases or purchases.
Which merchants should offer HELOCs?
In today’s increasingly competitive market, merchants across industries are seeking ways to boost their sales, increase customer satisfaction, and differentiate their businesses. One standout strategy? Offering Home Equity Lines of Credit (HELOCs).
While the core benefits of HELOCs—flexibility, low interest rates, and high borrowing limits—apply across industries, there are specific ways this financing option benefits different merchant sectors:
- Contractors and home improvement
Customers can finance everything from small repairs to large-scale renovations without maxing out their credit cards. HELOCs also provide flexibility for projects that expand in scope.
- Pool and spa
Customers in this space often require significant capital for installations or upgrades, and a HELOC makes it more feasible to afford luxurious features.
- Lawn and garden
Landscape renovations or outdoor improvements often come with sizable price tags. By offering a HELOC, merchants can help customers finance everything from backyard overhauls to patio upgrades.
Across the board, the affordability of HELOCs can lead to larger projects and bigger sales for merchants. When customers know they have access to a substantial, low-interest line of credit, they’re more likely to expand their project scope or opt for premium services and products. As a result, it is anticipated that the overall home improvement market will expand by an additional 10% from 2024 to 2027 as more homeowners tap into their home equity for renovations.
In a real-world scenario, this may mean a customer interested in a $50,000 kitchen remodel expands their vision to include additional upgrades like new appliances or custom cabinetry when they have the option of HELOC financing. Or, in another scenario, a customer who initially considered a small backyard renovation might decide to add features like a deck or water feature when financial strain is reduced. And this increase in ticket size doesn’t just apply to renovation-focused businesses; offering HELOCs could result in customers opting for pricier models or fancier add-on packages across industries.
Do HELOCs make sense for your business?
By offering a HELOC, merchants can help customers move forward with larger, more comprehensive projects, increasing their average ticket size and overall revenue. If you are considering HELOCs, use these helpful questions to discern whether they are likely to benefit your business:
- Do you sell high-ticket items or services that require significant investment from customers?
If you answered yes, HELOCS may be a good fit for your business needs. High-ticket items or services often present financial barriers for customers. Offering HELOCs allows your customers to leverage their home equity for flexible, affordable financing, making it easier for them to commit to large purchases like home improvements, pool installations, or solar systems. This not only boosts your sales but also makes your offerings more accessible.
- Is it important for your customers to be able to seamlessly borrow again if their project or purchase expands?
If yes, then HELOCs provide a revolving line of credit, which means your customers can easily borrow additional funds as needed without reapplying for financing. This flexibility is perfect for projects that evolve or expand, ensuring customers can continue purchasing from you without interruption, leading to increased customer loyalty and repeat business.
- Are you looking to offer competitive financing solutions with potentially lower interest rates?
HELOCs typically offer lower interest rates compared to unsecured loans or credit cards, giving your customers a cost-effective financing option. By providing access to these rates, you position yourself as a competitive merchant offering value-driven solutions, making it easier to close sales and stand out from competitors.
- Do you sell products or services that require ongoing or seasonal purchases by your customers?
While not the only goods or services that benefit, with HELOCs, customers have the flexibility to fund ongoing or seasonal purchases over time. This is ideal for merchants whose offerings include recurring services, such as landscaping or home maintenance, or seasonal needs like winter renovations or summer projects. By offering HELOCs, you create opportunities for sustained revenue streams and foster long-term customer relationships.
Boost your business with HELOCs through LoanStar
Incorporating HELOCs can be the key to boosting your next phase of business growth by offering customers the flexibility they need while helping you capture larger, more lucrative projects. But, to reach their full potential, you need to offer your financing options through the right embedded financing platform, one that promotes ease of use and transparency for your customers.
LoanStar’s embedded financing platform makes it incredibly simple for merchants to integrate HELOCs into their existing sales process, all with the knowledge that their financial offerings are backed by community-based lenders who have the financial well-being of customers in mind.
By offering HELOCs LoanStar’s MerchantLinQ platform, merchants can provide a seamless customer experience—from the initial project discussion to securing financing. Customers can apply for and receive approval for a HELOC through a link you send or host on your site without the need to visit a third-party lender or do their own research.
So, what are you waiting for? Click here to get set up with MerchantLinQ and start offering HELOCs today.
