Getting the funding you need for your business can be challenging. This can be especially true for a home based business.In addition to the tedious process of starting a home-based business, applying for licenses, filing taxes and much, much more, acquiring capital to start, grow, or expand the company is a process all in itself. Many small companies usually start as home-based businesses. It is at this stage where the owner lays the foundation for their future business. It’s also the stage where owners face their biggest challenges. Aside from getting clients, one of the biggest challenges for business owners is finding the right type of financing. Unfortunately, home-based businesses have few financing options. Most don’t have the assets or the track record needed to qualify for conventional bank financing. Instead, they must look for alternate and specialized options. Unfortunately, federal agencies cannot provide home-based businesses with grants, however, there are feasible programs available when it comes to financing. Let’s take a closer look at what’s available.
Home Based Business Financing Options
Equipment Financing help business owners purchase any type of equipment needed to run the business. The loan amount is dependent upon the type of equipment needed, as the repayment term is usually as long as the expected life of the piece of equipment and if it is used or new.
Split Funding also known as Merchant Cash Advance works on a pay as you earn model. It is important to know that Split Funding is not a loan. Instead, a flat percentage of your business’ credit and debit sales are automatically debited daily and put towards the repayment of your loan. If your business does a large amount of sales one day, a larger payment is taken out to pay back the advance. If a small amount of sales is done that particular day, you pay less. There is no fixed payment amount or maturity date. This type of funding is available only to businesses that accept credit card payments.
Short-Term Loans are uses as a way to fill an immediate financial needs and fix cash flow issues. Most lenders that provide this type of loan do not require a lot of paperwork and they can be used for virtually any business purpose. Common uses of short-term business loans are inventory purchases, new hires and employee training, equipment repairs, and filling gaps between accounts payable and receivable. This financing solution mean shorter having a shorter repayment schedule with higher costs. Short-term business loans are generally paid back via weekly ACH payments. In contrast, traditional term loans are paid back within a fixed term and a set interest rate. While traditional term loans allow you to build business credit and have fixed monthly payments, they come with less flexible terms and rates and penalties may be charged if the loan is paid off early.
ACH Loan: These loans may need personal guarantees, and have a fixed repayment schedule that is paid either daily, weekly or monthly. They are a popular funding solution for businesses that do not accept credit cards or want a set repayment schedule. Whether you need the working capital obtained through an ACH Business Loan for inventory purchases, new hires, employee training, purchasing equipment, or almost anything else for your business, this funding solution can be extremely beneficial. Unlike traditional business loans, funds from an ACH Business Loan disburse in as little as three business days after being approved for funding. Additionally, this funding product does not require a minimum credit score to qualify, which means many up and coming businesses or businesses experiencing a rough financial period. Having collateral is not necessary to qualify, so business owners who have poor credit or lack business history can still apply for this great funding solution.
Business Lines of Credit: A rotating loan, also known as a “LOC,” that gives business owners access to a fixed amount of money, which they can use day-to-day according to their need for cash. Interest is only paid on the amount of the advance actually used. There are two types of Business Lines of Credit:
Unsecured Business Line of Credit:
Unsecured Business Lines of Credit do not require borrowers to pledge any
assets as collateral. As a result, this tends to be a more popular type of business credit line to business owners. However, they are much more risky for the lender, therefore your credit score must be excellent. In addition, Unsecured Business Lines of Credit tend to be smaller with higher interest rates.
Secured Business Line of Credit:
A Secured Business Line of Credit requires business owners to put up assets as collateral in order to obtain the loan. While lenders do not typically require business owners to pledge assets like property, they will require the collateral in the form of inventory, accounts receivables, and more. Consequently, if you are unable to pay back the loan, your lender will seize your collateral in order to pay the balance.
Both Secured and Unsecured Business Lines of Credit will require your business to be in good standing. Lenders typically prefer to work with businesses that are well-established and in good financial standing, thus proving to the ability to pay back the loan. Depending on the lender, various financial documents will be requested to support this.
The Application Process
One of the benefits that come with alternative lending is a fast application and approval process. Business owners don’t need to fill out or submit mounds of paperwork, or have to wait months to receive an approval or decline. Once a business has been approved, they can be funded in a little as a week. Usually, the documentation that is initially submitted is enough for this to happen in most cases, but there are instances when additional documentation may be requested depending on the lender. The following is the standard business documentation you should have prepared when starting the application process:
– Business license
– One page application
– Voided check for the business account
– Clear copies of identification for all owners
– Proof of ownership
– Trade references
– Four months of bank statements
– Four months of credit card statements (if applicable)
Finding funding for a home based business can be tough, but luckily there are financial options in reach! For more information on the alternative financing solutions Excel Capital Management offers, call 877-880-8086 to speak to one of our Financial Specialists.
