Running and managing a home-based small business can be a profitable and pleasurable way to make a living. Financing home-based small business can be difficult. Before you consider applying for financing for your home-based small business, it is important to have an excellent and robust idea, some type of collateral, investors, in some cases a long-term plan for business success.
- Get Your Credit Report
A lender will not offer a home-based business loan to any potential borrower with bad credit. You may need your credit to be in prime shape – above a 720 FICO score is satisfactory – before filling out any applications for loan.
Check out the resources for information on how to acquire a copy of your credit report. Red flags or glitches that could eliminate you for a business loan include maxed-out credit lines, excessive trade lines, judgments, bankruptcies and charge-offs. Make sure to clear all your negative credit before applying for financing.
- Collect Documents
Think from a lender’s perspective – decide how strong a credit risk you are. Positive attributes of a successful home-based business loan borrower consist of strong assets (house, investments), existing investors (either angel investors or venture capitalists), strong cash flow from an existing business or other career and a unique business concept with a well-defined customer niche.
- Research Lenders on SBA Website
For more resources on information regarding business, check out the SBA guidelines. The SBA is not a direct lender but alternatively contracts with private lenders to offer SBA-backed small business loans to borrowers. A prospective lender is required to abide by the government’s guidelines, but, ultimately the lender is looking for a cost-effective loan and will examine your loan application very cautiously.
Be sure to present personal bank statements, business bank statements and a clear one-page report about the thrust of your home-based business, its potential customers and your concepts for long-term business sustainability and growth.
- Apply To Two or Three Lenders
Before filling out the loan application, make sure you have copies of all documents, a clear concept as to a loan amount and an inordinate amount of patience – sometimes applications for small business loans can deteriorate for weeks in underwriting. Be prepared to be flexible in your situations for a loan.
For instance, when you may not want to secure the loan, a lender can also require you to collateralize an asset to secure a loan – specifically if you take your first business loan.
- Make Sure the Loan Is Appropriate
Get the copies of all approved small business loans and evaluate the final terms for your unique business idea. Make certain that the capital is enough to fund your home-based startup business, make certain that you may make the monthly payments and your business idea continues to be feasible.
For instance, if another small business owner has come into the market you had anticipated to penetrate with the same idea, you would be wise to recheck your business plan before accepting any loan. In case, it appears as though your market remains there, continue with the home-based business loan. However, if your plan is at risk because of the new business, it is good to reject any loan and go back to the drawing board.