If you’ve decided to start a home business, congratulations. There are many benefits, including cost savings (you won’t be paying high-priced rent for office space) and a short commute. But even if you spend less to run your business out of your home, you will still need money to make it a success.
If you don’t have money socked away in savings (or don’t want to jeopardize that nest egg), business financing might be a good solution. There isn’t just one option when it comes to finding money for your business, so let’s look at a few of the most popular options.
There are banks and other lenders who specialize in loans for small businesses, and if you qualify, they can have the best interest rates of all the financing options we’ll discuss here. But just a note: if your business is too new, you may not get approved for a loan. If you haven’t built up your business credit, you may not qualify. If you don’t know what your business credit score is, check it and then do your homework to see which, if any, small business loans you might qualify for.
Another newer option for business financing is crowdfunding. Through sites like Kickstarter, you can raise funds from anyone who is interested in supporting your business. Let’s say you need $10,000 to get your home-based publishing company off of the ground. You’d post your project on the crowdfunding site with all the information about what you will do with the money, and then you’d heavily market the campaign to get as many donors as possible.
There are different types of crowdfunding sites. Some require you to give incentives to donors (like a t-shirt with your logo or first edition of the first book you publish). Others require you to pay the money back. Still others give your investors equity in the company. It’s important to decide which setup fits your needs before raising funds through crowdfunding.
If your home business sends invoices to clients, you may qualify for invoice factoring. Essentially, an invoice factoring company will buy out your outstanding invoices so you have a steady cash flow to run your business. In most cases, that third party is now responsible for collecting on those outstanding invoices.
You won’t get the full amount of each invoice you factor (that’s how they make their money), but the advantage here is that you don’t need a long history of being in business or high credit scores to qualify.
While business credit cards won’t always be the lowest rate option, they can be a smart way to get the funding you need to run your business. The key is not carrying a balance because interest rates can be 20% or higher. There’s no need to burn money by paying interest if it’s not necessary! (Keep in mind some cards offer low introductory interest rates and/or balance transfers.)
Having a credit card specifically for your business can make it easier to separate out your business finances from personal ones, and will make filing your taxes easier. Look for a business credit card with a great introductory rate, and if your business is new, look for cards that are startup friendly.
One additional source for financing for your home business could come from the people in your life who love and support you. If any of your loved ones are in a position to give a little financial support, approach them with a business proposal.
The key to borrowing from friends or family successfully is to treat it as the business transaction it is. Create an agreement and decide how much you’ll pay on the loan each month (with or without interest). What happens if you can’t afford to pay one month? The more you discuss the details, the less the risk of borrowing money having a negative impact on your personal relationship.
As you can see, you’ve got many options to help you fund your home business. Which you choose will depend on what kind of money you need, the age of your business, your credit history, and how much you’re willing to pay in interest.
Gerri Detweiler is a business financing and credit expert with more than 20 years of experience guiding individuals through the confusing world of credit. Gerri serves as the Director of Education at Nav, an online platform giving business owners free access to their business credit reports.