There’s more to just owning a business. You’re helping people. You’re helping the economy and the society by opening job opportunities for other people.
However, the reality that hits most businesses owners—whether small or large scale—is that they need capital to run their businesses effectively and efficiently. Home-based businesses are no exception.
According to Small Business Administration (SBA), more than 50% of the businesses operating in the US are small-scale. Unfortunately, the government is not able to provide all the funding needed by the start-ups. Instead of letting your dream business slip away and complaining about the lack of resources, it’s crucial that you determine other alternative funding solutions available.
What are some of the widely used or best business loans for startups? Let’s examine each of the funding solution you can use for your home-based business:
MERCHANT CASH ADVANCE
Merchant Cash Advance or ACH Bank Loan is aimed at helping small and medium-sized businesses. The funds coming out from this particular loan can be released in as fast as 3-4 business days, which is quite faster than traditional bank loans.
The qualification process is easier since there’s no need to have a minimum credit score. That’s great news for loan applicants who are rooting for a home-based business because many of them are just starting out.
You don’t need any collateral to qualify for this particular loan offer, so this could be one of your choices for small business funding. Another good thing is that ACH Bank Loans don’t require fixed payment system. Home-based business owners don’t have to worry about paying monthly payments and balloon payments that don’t increase interests overtime.
With regard to repayment, there are two collection options being applied by the lenders. For this Merchant Cash Advance, the payment will come from a percentage share of your credit as well as debit sales. ACH Bank Loans are common lending option being used by many home-based business owners who do not want to use credit cards for repayment. Instead, the Automated Clearing House (ACH) is used to accept repayments for daily, weekly, and monthly basis. Aside from the Automated Clearing House, another alternative is known as Lock-Box Agreement. The credit and debit sales on a daily basis will be deposited to the lock-box account and then be withdrawn by the any representative of the lender.
PURCHASE ORDER AND TRADE FINANCE
It is never a challenge for highly committed business people to find sales or production. But the more challenging part is the acquiring of raw materials or pre-sold merchandise.
Purchase order financing is one of the doable and working solutions available today.
This allows the producers, distributors, as well as wholesale suppliers grow their businesses. The most important feature behind this funding solution is that it’s enjoyed without the risks of an increasing debt or selling equity.
According to financial experts, purchase order and trade financing is a safe, flexible and fast method to choose. It enables the businesses to accommodate large orders of items, which means a bigger profits, timely deliveries, and increased market share.
CREDIT CARDS
This is one of the most common sources for funding a small business, but they usually come with risks.
If you have a certain problem with the operation like the salaries of your workers, you can use it to pay them. But there’s always risk when using credit cards. If you cannot pay, your credit card standing will be affected and the interest rate will increase.
If you can calculate the risks and are prepared for it, you can use credit card to finance your home-based business or to address some issues affecting your business operation. Remember to not use credit card to finance something that will not bring in money back to you.
SMALL BUSINESS FACTORING
If your business is selling a product or service to some large companies, there’s always a 30-60 day period for you to get paid by your client. This is professionally called as offering net-30 terms. Of course, you cannot wait that long time in order to get paid. You want fast payment system from your clients. If you don’t have another source of income, then your living is compromised plus the expenses in operating your business.
The Small Business Factoring Program finances the paying invoices. So you get funds as early you wish to. Meanwhile, the factoring company is waiting for 30 up to 60 days in order for its issued invoice to get paid. This is one of safest options to having a sure source of capital without extreme risks.
ASSET-BASED LENDING
Do you have assets? You can use them to borrow a loan to finance your business. Your asset is the collateral for your loan to make sure that your requested amount will be approved but based on the monetary valuation of your asset. So, when you avail of this type of funding solution, your property, let say a piece of a titled land, is held by the financing entity until you fully pay your entire loan.
With this method, there are two options: hire purchase or lease purchase. Hire purchase means that your asset is included on your balance sheet. The latter, on the other hand, does not include your asset on the balance sheet but under the condition that the total amount being loaned will be paid totally.
TURNAROUND FINANCE
Are you struggling but confident that your business is a viable one? If yes, then you can use this method – Turnaround Financing. In this solution, the financial company has to determine and acknowledge the issues or problem first. Then, there’s a need to change the management system. Strategies must be crafted, developed and must come into play.
Turnaround finance favors businesses with proven business model that really works and have stable revenue.
This funding solution is helpful and effective to remedy the temporary issues and problem. Such problems may be caused by credit restrictions or cash flow issues. Some instances of the issues are decreasing price of your stocks, losing a big client, late payment from your business creditors, as well as layoffs.
RETIREMENT LOANS FROM A 401(K)
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f you’re a retiree who wants to operate a home-based business, then you could think of financing your business with 401(k). This is a third party that allows you to avail a loan by using your personal retirement funds which come either from an IRA or investment account.
It’s a newer form of business loan offer, and it’s not always recommended because this will directly affect the applicant’s personal finances. However, if you’re committed to continue this you’d better work with an attorney.
LINES OF CREDIT
This is another funding solution that helps you pay your short-term expenditures such as your payment for the important equipment. You can also use it to expand your inventory, to cover other operating expenses and the like. It is somehow similar to having a credit card wherein you’ll be given a certain amount to use.
Where and how to pay? The payment is usually done by the financing company. You can withdraw the amount you need. The interest is only based on the amount you withdraw.
It is important for you to understand that the interest rates are a bit higher than the prime lending rate, but lower than credit card rates.
SBA LOANS
SBA is known as the Small Business Administration. It offers loans to small-scale and medium-size business owners. It offers two types of loans: small business loan program and micro loans This is applicable for the startups that have been running for a few years. The timeline of approval usually runs from 60 to 90 days with the amount of $150,000 and even more.
HOME EQUITY LOANS
If you don’t feel to avail of the above-mentioned financing options, maybe you’d want to use Home Equity Loans. This is a widely-chosen funding solution for many entrepreneurs. Why? The borrower can use the equity of his home as a collateral. The loanable amount depends on the value of the property and mortgage state. An appraiser from the lending institution dictates the value of the property.
The payments are usually made with a 15-year term, which is the most common.
PEER TO PEER LENDING
Another way to have a capital for your home-based business is to utilize such peer to peer lending system. This will allow you to borrow enough money from other people. There’s always a variation with respect to the amount of your loan. The average maximum amount is usually at $35,000.
More often, this solution or method doesn’t allow lending money to business entities. On the other hand, there are other individuals lending money for other people to start running a business. Your loans in this regard are treated as personal rather than business in nature. One of the peer to peer lending institutions is Prosper or Lending Club.
FRIENDS AND FAMILY
Ideally, this is the easiest way to have a fund – to acquire from your friends and family. If you have a rich relative or friend, why not approach him or her if he or she would be willing to fund or lend you a certain amount.
But beware because there are corresponding risks when you approach one of your relatives and/or friends. You can ruin your relationship with them if you cannot pay the amount and its interest on time.
You should treat your friends and relative as a professional investor. Detach the personal feelings and emotions. This means disclosing any necessary financial information and paying on the agreed date. You need to deepen the discussion about risks and how to address them. It’s also best to have a legal agreement for the loan. Again, extracting funds from friends and family members is possible, but it’s also dangerous.
CONCLUSION
If you think that getting loans from the banks is easy, you’re wrong. They have stricter policies and guidelines. So, if you’re a small business owner, you must be considering one of the alternative business financing solutions for home-based business.
Some of these alternatives have simpler loan requisites. They also have flexible terms and conditions for you. They’re designed for startups.
Why the alternative lenders are great funding solution providers? They also work with companies that have experienced all forms of ups and downs. The most important thing is that you have a working business model, structure and operation. If your business is really doing well, then you can easily get their approval. You have to refrain from the traditional assumption that only banks can give you such business loans.
Eventually, there are many benefits in determining the different funding solutions and in choosing one that’s right for your situation. There are no lengthy and tedious processes involved. Unlike the bank requirements, there are quick providers of funds, although there are also alternative sources that release loans in 90 days. As a home-based business owner, you can have the ease and simplicity of funding your business.
