Published By Janet Gershen-Siegel at September 6th, 2017
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.
There are two primary kinds of SBA loans you can generally secure. One kind is CAPLines. There are in fact a few 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.
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.
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:
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.
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.
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.
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.
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, such as 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. Late payments will 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.
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.
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.
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 tmore 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. Multiple cards create competition, and this means they will raise your limits, ordinarily within 6 months or less of original approval.
Approvals can go up to $150,000 per entity like a corporation. 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.
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.
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.
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.
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 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.
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.
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.
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.
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.
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 get company credit with few personal credit checks and or personal guarantees. 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.
Stop asking your family for handouts! There are lots of ways to fund your home-based business.