Funding for a Home-Based Business
Getting the funding you need for a home-based business can be challenging. Home based business loans can help eligible businesses cover equipment, inventory, payroll and other operating costs without a separate commercial office. Approval depends on the business, the financing product and the provider’s requirements.
Starting a home-based business means sorting out licenses, taxes and day-to-day operations. Finding business capital to start, grow or expand is another step. If you are wondering how to get a loan for a home-based business, understanding what funders look for is a useful place to start.
Many small companies start at home. It is where owners build their customer base and lay the foundation for the business. Money can be tight during those early years.
Aside from getting clients, one of the biggest challenges for business owners is finding financing. Some funders apply stricter requirements to home-based businesses, especially when operating history or collateral is limited. There are still several financing options to consider.
Home-based business funding can take several forms, from equipment financing to a revolving line of credit.
This guide covers five funding options, why approval can be harder and what to prepare before you apply.
Explore funding for your home-based business with Excel Capital:
Home-Based Businesses After COVID: A More Common Way to Work
Home-based businesses were common long before the pandemic. The SBA Office of Advocacy’s 2020 Small Business FAQ reports that about 50% of all U.S. businesses were home-based including businesses without employees. That figure comes from older survey data, so it describes the pre-pandemic picture.
Since COVID-19, working from home has become a regular part of business life. Consultants, online sellers and service businesses can manage clients, payments and teams from a home office. For many owners, there is little reason to take on a separate office lease.
U.S. Census Bureau data on working from home illustrate the broader change: 13.8% of U.S. workers usually worked from home in 2023, compared with 5.7% in 2019. These are workforce figures, rather than a count of businesses or loans, but they help explain why working from home feels much more familiar today.
Working from home can cut rent, commuting and office costs, leaving more money for equipment, marketing and staff. Even with lower overhead, you may still need working capital when bills come due before customers pay.
Why Many Businesses Operate From Home, Especially Contractors
Construction is a good example. A general contractor, roofer, electrician or remodeler may handle estimates, scheduling and bookkeeping from a home office while crews work at customer job sites. Paying for a separate office may add little value when customers rarely visit it.
A contractor can run the office from home while owning tools and equipment, using a storage yard, employing a crew and working on signed projects. The address alone tells a funder very little about the size or stability of that business. Our guide to construction business loans explains financing needs such as materials, payroll and equipment while waiting for project payments.
The same logic applies to mobile service providers, online retailers, bookkeepers and creative agencies: the work may take place at clients’ properties, online or across a remote team. A funder needs to understand how that business operates and earns revenue.
Still deciding what to launch? Explore our home-based business ideas for options that fit your skills and experience.
Why Can It Be Harder for a Home-Based Business to Get Funding?
Perceived flight risk and business continuity
A funder wants to know that your business will still be operating when payments come due. Without a commercial lease, storefront or fixed business location, some funders may worry that it would be easier to shut down, move or become difficult to contact. This perceived “flight risk” can make them more cautious about an application.
A commercial lease is only one sign of commitment. Years in business, repeat customers, signed contracts, consistent deposits and an address the funder can verify can also show that you have an established business. Closing or moving a business does not, by itself, cancel its debts, contracts or applicable personal guarantees.
Fewer fixtures and other assets available as collateral
Some home-based businesses have few or no business-owned fixtures compared with a shop, restaurant or commercial workshop. Fixtures are goods that attach to real property so closely that applicable law treats them as part of that property. A laptop, portable tool or movable desk is generally equipment or furniture, rather than a fixture.
Fixtures can be part of the collateral securing business financing. Depending on the security agreement and applicable law, other collateral may include equipment, inventory and accounts receivable. A UCC filing gives public notice of a claimed security interest; filing alone does not create collateral or make low-value assets more valuable. If there are few assets a funder could recover after a default, qualifying for financing that relies on collateral may be harder.
The UCC’s rules for security interests in fixtures include special priority rules, and a creditor may need a fixture filing. The actual collateral depends on the agreement, the borrower’s rights in the assets and state law. A business address at home does not automatically put the house or the owner’s household fixtures under a business UCC lien.
Harder-to-verify revenue and repayment capacity
If personal and business transactions run through the same account, it can be hard to tell how much the business earns. Incomplete records or dependence on one customer can raise more questions. Clear bank statements, current financial reports and a practical repayment plan help the funder understand what is happening in your business.
What helps: Explain why working from home fits your industry, where the work actually happens, and how the business earns steady revenue. Support that explanation with licenses, insurance, customer contracts, invoices, bank statements and an accurate list of business assets and existing liens.
How to Fund a Home-Based Business: 5 Financing Options
When comparing home based business loans, start with what you need to finance. Equipment purchases, day-to-day expenses and gaps between customer payments may call for different products.
1. Equipment Financing
Equipment financing helps business owners purchase eligible equipment needed to run the business.
The loan amount is dependent upon the type and cost of equipment needed. Repayment terms depend on the provider, the equipment’s expected useful life and whether it is used or new. The equipment itself commonly serves as collateral.
2. Split Funding / Merchant Cash Advance
Split funding is a form of merchant cash advance that works on a “pay as you earn” model.
Providers generally structure a merchant cash advance as a purchase of future receivables rather than a loan. In a card-split arrangement, an agreed percentage of your business’ credit and debit card sales goes toward the purchased amount.
On days with higher card sales, the provider collects a larger remittance. When card sales drop, you remit less. Other revenue-based advances collect through ACH debits and may include reconciliation provisions. Review the total cost, collection method, adjustment rights and any guarantees in the agreement.
3. Short-term Loan
Short-term business loans help owners cover immediate expenses and manage cash flow gaps.
Some providers require less paperwork than a traditional bank loan, and you can use the funds for a range of business purposes. Permitted uses depend on the agreement.
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. A shorter repayment schedule can mean larger payments and higher costs. Repayment may be daily, weekly or monthly, depending on the lender and agreement.
Traditional term loans also have a fixed repayment term, but the interest rate may be fixed or variable. Payments are often monthly. Whether payments build business credit depends on the lender’s reporting, and any prepayment penalty depends on the agreement.
4. Unsecured Business Loans
Unsecured business loans can help home-based owners who do not have specific assets to pledge as collateral. Lenders review factors such as revenue, cash flow, credit and operating history. Product terms vary, and some providers may still require a personal guarantee or blanket lien on business assets.
Depending on the agreement, you can use the funds for inventory, payroll, marketing, equipment or other business expenses. Compare the total cost and payment schedule with the cash your business expects to collect.
Some lenders collect repayments through ACH, which means automatic debits from your business bank account. ACH describes the payment method. Your agreement determines whether payments fall daily, weekly or monthly.
Credit score, revenue, time in business and collateral requirements vary by provider. Some products accept borrowers with challenged credit or do not require a specific asset pledge, but a personal guarantee or a lien on business assets may still apply. Review the agreement before accepting an offer.
5. Business Line of Credit
A business line of credit, also known as a “LOC,” gives business owners access to a credit limit they can draw on as needed. On a revolving line, repaid principal generally becomes available again, subject to the agreement. Lenders generally charge interest on the amount you draw and may also charge fees.
There are two types of Business Lines of Credit:
1. Unsecured Business Line of Credit
Unsecured business lines of credit do not require you to pledge specific assets as collateral, though product descriptions vary. Check whether the lender requires a blanket business lien or personal guarantee.
This can be appealing to home-based business owners with limited fixed assets. Credit requirements vary, and lenders may also review revenue, cash flow and time in business.
In addition, they tend to be smaller with higher interest rates.
2. 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.
Depending on the lender, collateral may include inventory, accounts receivable, equipment or other assets. If you default, the lender may enforce its rights against the pledged collateral under the agreement and applicable law.
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 demonstrating the ability to pay back the loan. Your lender may request financial documents to assess your ability to repay.
Explore a business line of credit for your home-based business with Excel Capital:
Can a Home-Based Business Get an SBA Loan or Microloan?
A home-based business may be eligible for SBA-backed financing if it meets the program’s and lender’s requirements. The SBA’s 7(a) eligibility guidance emphasizes an eligible operating business, creditworthiness and reasonable assurance of repayment. A home address alone does not establish eligibility. See our SBA loan guide for an overview.
For smaller needs, including some startups, the SBA Microloan program provides loans of up to $50,000 through approved nonprofit intermediaries. Each intermediary makes its own credit decisions and sets terms. This can be worth exploring if your home-based business does not yet have the operating history needed for other financing.
How to Apply for Home Based Business Loans
One of the benefits that come with alternative lending is a fast application and approval process.
Applications for home based business loans vary by provider. Some alternative lenders offer streamlined applications, but funding speed and paperwork depend on the product and completeness of your application.
Your lender reviews the initial paperwork and may ask for additional documents before making a funding decision.
Prepare these common business documents before you apply:
- One-page application
- Voided check (for your business account)
- Copies of identification for all owners
- Proof of ownership: Most recently filed tax return, corporate bylaws or LLC articles of organization
- Proof of EIN, such as an IRS EIN confirmation letter; see our Form SS-4 and EIN documentation guide
- Recent business bank statements (the number of months varies by provider)
- Aging AR report if you invoice customers on net-30 to net-90 terms
Your lender may not need every document on this list. Having current records ready can help you answer questions quickly and avoid delays.
Help the funder verify your home-based business
Also be ready to explain where you perform your work and provide current licenses, insurance, proof of your operating address and customer contracts or invoices. Contractors can include a project backlog and payment schedule. Keep personal and business finances separate, disclose existing financing and liens, and prepare a current profit and loss statement. If customers pay after you complete a job, an accounts receivable aging report can help explain the gap between billed revenue and collected cash.
Home-Based Business Funding with Excel Capital
When comparing funding for a home-based business, look at the total cost, payment schedule and any collateral or personal guarantee requirements.
At Excel Capital, we help business owners explore financing options based on their revenue, operating history and funding needs.
The application process is quick. If approved, some products may fund in as little as 24 to 48 hours after required documentation and verification are complete; timing and availability vary.
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