Running an enterprise – even if it is a non-profit – costs money. A person might have a great business idea and plan that needs to materialize or a current business that needs a boost. Being home-based is not easy, because the business is likely a small operation. While there are many risks of running a home-based business, there are several financing options available.
Commercial bank loans
These are traditional loans, for which qualification is more stringent. While many home-based businesses might not be required to produce financial statements, banks require these to assess the credit risk of the business. In addition, a sound business plan (for new businesses) and collateral would likely be necessary for commercial loans.
To encourage small business development, many countries have state institutions whose main objective is to assist the development of small and home-based enterprises. Loans can be given to home-based businesses under a special program (like development entrepreneurship in rural districts, for example).
Governments often provide incentives for entrepreneurs through business grants or incentives. The Small Business Administration gives some information on grants available and eligibility requirements. It is important to note that grants do not have to be repaid, but they are not normally used to finance the start-up of a business. Instead, they are a useful boost to existing businesses that demonstrate potential or need funds for research.
Depending on your capital needs, credit rating, and credit limit, the credit card is now an option for home-based businesses. While the interest rate would be higher than traditional loans, it is an easy option for those who have the ability to repay these loans even if the home business does not succeed.
Home equity allows you to access the equity in your home, but it can also be a good option if you choose to invest it in a sound business idea. However, it is important that you avoid using all of your equity to finance the business idea, since you stand to lose your home with this option.
Business cash advance
This option is different from traditional business loans in that there is greater flexibility and these loans are typically unsecured. Proof of gross monthly income might be the only financial record necessary – not financial statements. Depending on the success of your business, there is a possibility of borrowing up to $250,000 from some lenders with the business cash advance.
Home-based businesses can access traditional and non-traditional loans. Getting a few thousand on credit is typically easier than a traditional loan. However, the traditional loans that have more stringent requirements can help you to assess the state of your operations and provide incentives to stick to best practices in terms of record-keeping and business operations.