Setting up a business is an interesting pursuit because of the prospect of introducing an innovative product or service to the world, carving a niche for yourself and establishing yourself as an industry player. Whether you work from home or in a big corporation, these challenges are very similar.
However, before success knocks, there are challenges that must be addressed, and one of them is financing your business. We have drawn up a list of some of the viable sources of financing your home business you can leverage.
Small Business Loans
For many, a bank is the one-stop shop for any business financing. However, statistics show that only 10% to 15% of loans see the light of the day. According to Inc, small business loan approval rates only improved by 2 % to 20.1%. This report is courtesy of Biz2Credit Small Business Lending Index. With that in mind, you will have to create a stellar business plan to qualify for this kind of loan.
Craft a business plan that evaluates your strategy, vision, goals, competition, product and services, employees, management team, amount of money you need and an outline of how you want to spend it. Just make sure you impress the bank to give you the loan.
Home Equity Loans
If you are a homeowner, you should consider this kind of loan. This type of business loan is advantageous because the interest rate on repayment is low. According to Bankrate.com, you need a steady personal income to qualify for this loan.
This kind of business financing is ideal for those that have a steady job and are just trying to start a business on the side, or have a steady business already. You will also need to evaluate your comfort level of borrowing this loan against the security of your treasured home.
Line Of Credit
This is an awesome alternative for entrepreneurs or freelancers to take care of short-term needs. There are two types of credit lines; business and personal. For the business line of credit, your business credit rates and limits are evaluated based on the scale of your business and performance.
Personal line of credit, on the other hand, is evaluated on the basis of your credit history, income, and assets. In another report, outstanding balances on line of credit rocketed to $266-billion as of March, 2015, up from $100 billion in 2005 and just $35 billion in 2000, with the statistics relevant to U.S. and Canada.
Although line of credit loans come along with lower interest rates compared to credit cards, financial advisors warn that they should not be used for extensive business investments. If you intend to finance a major expansion or purchase, a business loan would be ideal.
Another new and interesting alternative lending option that has come about recently is the concept of peer-to-peer lending. While relatively new, it has strong potential to change the way we finance many things, including businesses, going forward.
Family and Friend Loans
Friends and family members who like your business idea may agree to lend you money to start your business or beef up an existing one. According to a study by the Consumer Credit Counseling Services (CCCS), 63% of those interviewed said they always turned to family approaching relatives for business financing.
There are two ways to seek out this kind of finance. First, borrowing their money as a loan. Second, selling them your business shares. Borrowing their money as a loan is less complicated because even small lenders might want to have a say in the business operations and strategies.
Venture Capitalists Or Angel Investors
Venture capitalists or angel investors may be willing to offer you business loans in anticipation that they will benefit from a huge calculated return on investment. Venture capitalists majorly originate from companies or firms, while angel investors are independent wealthy people.
According to Angel Blog, venture capitalists and angel investors spend over $25 billion in the US and $3 billion in Canada towards businesses each year. This figure underscores the likelihood of securing funding from angel investors and venture capitalists.
You can get a business loan debt-free with angel investors and venture capitalists, but it is vital to know beforehand the degree of control they will have over your business. A well- drawn up business plan is a must-do if you want to get funding from venture capitalists and angel investors.
Before deciding to choose any source of home business financing, consider the rate of repayment and make sure that you’re able to repay without glitches. When acquiring loans from friends and family or any other lender, see to it that there is documentation to mitigate any future disputes.
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