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Fund Your Home-based Business the Right Way from the Start

Published By Janet Gershen-Siegel at September 6th, 2017

Fund a Home-Based Business Without Jeopardizing Your Personal Assets

A home-based business can get expensive in a hurry. Between supplies and the phone system, to the printer ink and postage, and don’t forget your computer, you might be experiencing negative cash flow before your business really starts to take off. So here are some ideas for getting funding which don’t involve getting a loan from someone in your family. Fund your home-based business the right way, now!

Fund Your Home-Based Business with a Loan from The Small Business Administration

The SBA says that over half of American businesses are based out of a home. And they have a number of loan programs you can take advantage of. Note: the SBA doesn’t provide the loan; they work with the lender and they make these programs available to you, the small business owner.

SBA Loans

There are two primary kinds of SBA loans you can generally secure. One kind is CAPLines. There are in fact 4 types of CAPLines that can work for your business.

You can also acquire a lower loan amount faster using the SBA Express program. A lot of these programs offer BOTH loans and revolving lines of credit.

From the SBA … “CAPLines is the umbrella program under which SBA helps business owners meet short-term and cyclical working capital needs”. Loan amounts are offered up to and including $5 million. Loan qualification criteria are the same as with other SBA programs.

Working Capital

Borrowers must use the loan proceeds for short term working capital/operating needs. If the proceeds are used to acquire fixed assets, lender must refinance the portion of the line used to acquire the fixed asset into an appropriate term facility no later than 90 days after lender discovers the line was used to finance a fixed asset.

Microloans

These are not for a lot of money. The SBA facilitates microloans of up to $50,000, but the average amount is around $13,000. You can use an SBA microloan for:

  • Working capital
  • Furniture or fixtures
  • Inventory or supplies
  • Machinery or equipment

However, they won’t let you use it for buying real estate or to pay off business debts.

General Small Business Loans

Ah, the 7(A). It’s available for most forms of small business although, like the CDC/504 loan, you can’t get one if your business’s profits depend on sales made by an ever-increasing number of participants. You also can’t get one if your business derives (either directly or indirectly) more than 2.5% of its gross revenue through the sale of products or services, or the presentation of any depictions or displays, of an indecent sexual nature. Since this is not too terribly well-defined, it’s hard to say whether it would include lingerie (although it most likely includes marital aids). You might need to check with your lender.

There are also some restrictions on franchises. Again, it’s always best to check the fine print and, if you have questions, talk to your lender.

Fund Your Home-based Business Credit Suite

Fund Your Home-based Business

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business.

Fund Your Home-Based Business with SBA Express

You can get approval for up to and including $350,000. Interest rates vary, with SBA enabling banks to charge as much as 6.5% over their base rate. Loans in excess of $25,000 will call for collateral.

Approval Details

To get approval you’ll need good personal and company credit. Plus the SBA specifies you must not have any blemishes on your report. An acceptable bank score requires you have at least $10,000 in your account over the last 90 days.

You’ll likewise need a resume showing you have business sector experience and a well put together business plan. You will need three years of business and personal tax returns, and your business returns should show a profit. And, you’ll need a recent balance sheet and income statement, thereby showing you have the funds to pay back the loan.

Collateral

To get approval you’ll need account receivables, but only if you have them. When it comes to the collateral to make up for the risk, generally all business assets will serve as collateral, and some personal assets including your residence. It’s not unusual to need collateral equivalent to 50% or more of the loan amount. You also need articles of incorporation, business licenses, and contracts with all third parties, and your lease.

Microloans (but not from the SBA)

There are other microloan providers. You can try the Association for Enterprise Opportunity to find a local microlender.

Bank Loans

What if you need more than a microloan, or your business falls into too many SBA exceptions? Then apply for a bank loan for your home-based business. Be prepared to put up collateral, which could be equipment or inventory or the like. Pay back your loan on time or else your business’s credit score will suffer.

Business Credit Cards

Another option is business credit cards. However, be aware that you must pay off business credit cards just like personal credit cards. A high credit utilization rate (the amount of credit you use, divided by the total amount of credit available to your company) of greater than 30% can bring down your business credit score. This can make it harder to borrow money or get another business credit card. Therefore, be vigilant with these and pay them off as soon as is practical.

Fund Your Home-Based Business with Crowdfunding

You might want to try with a service such as Kickstarter or GoFundMe. Always make sure you read the fine print, because many crowdfunding platforms require that you give all of the funding back if you do not make your goal by the end of the crowdfunding campaign (IndieGoGo has a flexible funding option). Also, crowdfunding platforms take a percentage of the donations, and they generally will push to have you deliver on your promises, so you’ll have to actually do what your business is supposed to be doing – or face a potential lawsuit.

You will need to make a lot of choices before you even launch a business crowdfunding campaign.

How Much?

Your very first decision should be: just how much do I need to crowdfund? If you need $1 million, you are going to need to crowdfund more than that. Why? Because that is how crowdfunding platforms make their money – they take a percentage of whatever money you can raise. Therefore, you will need to take that into consideration. Crowdfunding percent costs range from 4% to 10%.

Will I Succeed?

Another decision is about how successful you believe your campaign is going to be. If you are extremely confident that you will be 100% funded at the end of your campaign, then traditional funding is for you. If you aren’t sure, then try GoFundMe’s flexible funding. With flexible funding, you, the campaign runner, can retain your donations even if your campaign fails. However, for this privilege, you will need to pay an increased fee to GoFundMe. Other crowdfunding platforms like Kickstarter don’t provide this option.

Home-based Business Finance Credit Suite

Fund Your Home-based Business

Your Campaign Strategy

A few words on strategy:

Pitch Videos

Your pitch video needs to be good. Use an expert to film it and create the script. Can’t pay for professionals? Then try schools, both students and instructors.

Your script does not need to be verbatim but you must have points you wish to make and not rattle on. Create a script and stay with it. This is not the time to improvise.

Show the Evidence

If you have physical evidence of your project, then make sure to show it in your campaign video and on your campaign webpage. This means a photo of your health club’s sign or a short video recording of your prototype robot.

Address Skepticism

A lot of people are understandably skeptical about crowdfunding. An image and a tangible thing will go a long way to assuring them that your project isn’t vaporware.

Manners Matter

Say please, thank you, and you’re welcome to everyone. Use these magic words in your pitch and in your correspondence with your donors, even in the cover letters you send with your perks (even internet perks can include a cover email message). You do not need to be servile, but you absolutely must be polite.

Don’t Be Greedy!

If you need $250,000 for your campaign, but you call for $1,000,000, that does not do anybody any good.

You’ll just look like you wish to bum off others’ generosity. Instead, account for your expenditures as clearly and transparently as you can. And incidentally, if you misuse your funding, you could find yourself in an unpleasant meeting with your state’s attorney general. So be honest!

Stretch Goals

Your stretch goals should be a combination of easily achievable and pie in the sky. If you are crowdfunding for $100,000, a rather easy to achieve stretch goal is $125,000.

Pie in the sky is going to be more like $300,000. Make it perfectly clear what you will do with any added funds if you are lucky enough to get it. Will you buy the property your business operates in? Employ five additional people? Replace your outdated equipment? Open up a brand-new market on some other continent? Let your donors know what you are striving for, so they can dream with you.

Courtesy Counts

Be polite if your campaign falls short. Even if you use GoFundMe’s flexible funding option, you nevertheless might not get enough to make a significant dent in your funding needs. If you hoped for $100,000 and you just got $500, your best option is to simply return the money.

If you almost got there with $95,000, then say thanks to everybody who donated and see what you can do, despite the fact that there’s a shortfall. And let them know what you’re doing! Perhaps you’ll buy your building next year, or hire four people as opposed to five.

Once more, give your donors a stake in and an inside look at your startup. This will enable them to feel invested. And they might just decide to make up the deficiency on their own. Even if your crowdfunding campaign concludes doesn’t mean a donor cannot send a check or purchase extra goods or services. If that happens, then politeness is crucial.

Donor Strategy

Line up the most significant and most trustworthy donors you can before you start. Tell your mother or your brother in law or your former high school soccer coach to postpone on handing over their $1,000 or $10,000 donation till you begin your campaign.

And ask them (nicely!) to release their money at a very precise time. Which time? The first or very last day of the campaign (split the anticipated funding as well as you are able; if the division isn’t close to half and half, then ask for the bigger chunk of donations to come on the very last day of the campaign). Benefit from the novelty factor of the very first day of the campaign, or the urgency factor of the very last.

Much like a busker with a few of her own bucks in her hat, to encourage people to throw a few bucks for a song, you want your most significant donors to show other donors that they have confidence in you and in your project. And you also want them to suggest your other donors that they had best get in on investing in your startup before the chance ends.

Social Media

Share your campaign on social media sites and ask your friends and family to do so, too. Tweet the link. Add it as a Facebook status. Make it a Tumblr blog post or a snap on Snapchat or publish a blog post about it. Ask your network to publish the link. The best method to get your network to help you out is by assisting them in return. If your relative’s band is on Facebook, share their page, or tweet about it.

Be a participating member of your very own personal community, and your contacts will be far more likely to help you out when you ask. And repeat these social media posts. Considering timezones and our all-too hectic lives, people may not see your message the first time around. Mix it up and deliver it at odd hours (you can normally use scheduling software like HootSuite for this), including what is the middle of the night where you live.

And…

Lastly, if your startup crowdfunding campaign is successful, consider donating a few bucks to others’ campaigns, or at the very least to charity. Because company goodwill and a good reputation are priceless.

Fund Your Home-based Business Credit Suite

Fund Your Home-based Business

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business.

Fund Your Home-Based Business with Unsecured Business Credit Cards

Many of these cards report to the consumer credit reporting agencies. They all require a personal guarantee from you. You can get approval in general for one card max as they discontinue approving you when you have two or more inquiries on your report.

Most credit card providers feature business credit cards including Capital One, Chase, and American Express. These have rates much like consumer rates and limits are also similar.

Some of them report to the consumer reporting agencies, some report to the business bureaus. Approval requirements are similar to consumer credit card accounts.

Inquiries

Usually, when you apply for a credit card you put an inquiry on your consumer report. When other lenders see these, they won’t approve you for more credit because they have no idea how much other new credit you have lately obtained.

So they’ll only approve you if you have less than two inquiries on your report within the most recent six months. Any more than that will get you declined.

Fund Your Home-Based Business with Unsecured Business Financing

With this form of business financing, you work with a lender who specializes in securing business credit cards. This is a very unusual, very little know of program which few lending sources offer. They can typically get you three to five times the approvals that you can get on your own.

This is due to the fact that they are familiar with the sources to apply for, the order to apply, and can time their applications so the card issuers won’t reject you for the other card inquiries. Individual approvals typically range from $2,000 – 50,000.

The result of their services is that you ordinarily get up to five cards that resemble the credit limits of your maximum limit accounts now. Multiple cards create competition, and this means they will raise your limits, ordinarily within 6 months or less of original approval.

Approvals

Approvals can go up to $150,000 per entity like a corporation. With UBF they actually get you three to five business credit cards that report solely to the business credit reporting agencies. This is huge, something the majority of lenders don’t offer or promote. Not only will you get cash, but you build your business credit also so within three to four months, you can then use your new corporate credit to get even more money.

Rates

The lender can also get you low introductory rates, regularly 0% for 6-18 months. You’ll then pay normal rates after that, typically 5-21% APR with 20-25% APR for cash advances. And they’ll also get you the best cards for points. So this means you get the very best rewards.

Just like with anything, there are big benefits in partnering with a source who concentrates on this area. The results will be far better than if you try to go at it on your own.

Qualifications

You have to have excellent personal credit right now, preferably 685 or higher scores, the same as with all business credit cards. You shouldn’t have any derogatory credit on your report to get approval. And you must also have open revolving credit on your consumer reports right now and you’ll have to have five inquiries or less in the most recent six months reported.

Fees

All lenders in this space charge a 9-15% success based fee and you only pay the charge off of what you secure. Keep in mind, you get a ton of additional rewards and about three to five times more cash through this program than you’d get on your own, which is why there’s a fee, the same as all other lending programs.

You can get approval using a guarantor and you can even use a number of guarantors to get even more money. There are also other cards you can get making use of this very same program but these cards only report to the consumer reporting agencies, not the business reporting agencies. They are consumer credit cards versus business credit cards.

Benefits

They offer similar benefits including 0% intro annual percentage rates and five times the amount of approval of a solitary card but they are a lot easier to qualify for.

You can get approval with a 650 score and seven inquiries (or fewer) in the last six months and you can have a bankruptcy on your credit and other negative items. These are a lot easier to get approval for than UBF company credit cards.

With all preceding cards above, you have to have good consumer credit in order to get approval but what if your personal credit isn’t really good, and you do not have a guarantor?

This is the time when building business credit makes a great deal of sense even if you have good personal credit, establishing your business credit helps you get even more money, and without a personal guarantee.

Fund Your Home-based Business Credit Suite

Fund Your Home-based Business

Demolish your funding problems with our rock-solid guide about 27 killer ways to get cash for your business.

Fund Your Home-Based Business with Private Investors and Alternative Lenders

Private investors and alternative lenders also offer credit lines. These are a lot easier to qualify for than conventional SBA loans. They also need much less documentation for approval. These alternative SBA credit lines generally demand good personal credit for approval.

Unlike with SBA, many of them don’t require good bank or business credit approval. Nearly all of these kinds of programs require two years’ of tax returns. Tax returns need to show a profit. Rates can vary from 7% or greater and loan amounts range from $25,000 into the millions. Loan amounts are often based upon the revenues and/or profits on tax returns. At times lenders may ask for other financials including a profit and loss statement, balance sheets, and income statements.

Merchant Cash Advances

Merchant cash advances have rapidly become the most popular way to get financing, in large part because of the effortless qualification process. Businesses with $10,000 in revenue can get approval, with the business owner having scores as low as 500.

Some sources have now even begun to offer credit lines that accompany their loans. You must have at least $10,000 in revenue for approval. You should be in business for at minimum one year, though three years is better. Lenders generally want to see a credit score of 650 or better for approval.

Loan amounts are frequently around $20,000. Lenders generally do pull your business credit, so you ought to have some credit already and at times lenders will want to see tax returns.

Rates vary, due to the risk for this program, and there usually are not a lot of funding sources who offer it.

Fund Your Home-Based Business with Credit Lines

A credit line, or line of credit (LOC), is an agreement between a borrower and a bank or private investor which establishes a maximum loan balance which a borrower can access.

A borrower can gain access to funds from their line of credit anytime, so long as they don’t go over the maximum set in the agreement, and so long as they meet any other requirements of the bank or investor including making on time payments.

Advantages

Credit lines deliver many one-of-a-kind benefits to borrowers which include versatility. Borrowers can utilize their line of credit and just pay interest on what they use, unlike loans where they pay interest on the sum total borrowed. Credit lines can be reused, so as you acquire a balance and pay that balance off, you can use that accessible credit again, and again.

Details

Credit lines are revolving accounts similar to credit cards, and compare to various other types of funding including installment loans. Often, lines of credit are unsecured, much the same as credit cards are. There are some credit lines that are secured, and for that reason easier to be granted

Credit lines are the most routinely requested loan type in the business world although they are very popular, authentic credit lines are few and far between, and tough to find. Many are also very tough to get approval for calling for good credit, good time in business, and good financials. But there are various other credit cards and lines that few people know about that are available for start-ups, bad credit, and even if you have no financials.

Fund Your Home-Based Business with Securities as Collateral for Financing

You can get financing irrespective of personal credit if you have some kind of stocks or bonds. You can also get approval if you have somebody intending to use their stocks or bonds as collateral for financing.

Personal credit quality doesn’t matter as there are no consumer credit requirements for approval. You can get approval for as much as 90% of the value of your stocks or bonds. Rates are frequently below 2%, making this one of the lowest rate credit lines you’ll ever see. You can nevertheless earn interest as you usually do on your stocks and bonds.

Fund Your Home-Based Business with Building Company Credit

Business credit is credit in a company name, in association with the business’s EIN number, and not the owner’s Social Security Number. When undertaken correctly, you can obtain company credit without a personal credit check and no personal guarantee. This is something all other cards above can’t deliver.

You can get three types of company credit cards. First is vendor credit, which offers net 30 terms to set up a business credit profile. Then is retail credit, where you will get credit cards with high limits at most stores.

Next is fleet credit. It’s credit to fuel, service, and maintain business vehicles. And then there’s cash credit, which includes Visa, MasterCard, and American Express cards that you can use anywhere. You can get these without any credit check or guarantee. Limits are typically $5,000 – $10,000 to get started, and can exceed $50,000.

Takeaways

Stop asking your family for handouts! There are lots of ways to fund your home-based business.

 

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