Question – What is the best way to finance a start-up business from your home?
Our Answer – Every business is going to have different financial needs but fundamentally, getting a home-based business loan isn’t really any different from getting a loan for any other business.
First you may want to read more about financing a business.
One of the challenges many home-based businesses face when getting financing is a lack of collateral. Collateral includes any assets that are pledged as security for the repayment of a loan.
Many entrepreneurs starting a business from their home need funding for working capital needs like salary, marketing, accounts receivable, etc. Unlike real estate or equipment purchases, working capital can’t be used as collateral because once the money is spent, there is nothing that the bank can hold title to and sell should the loan default. Another common loan request for home-based businesses is for inventory purchases. At best, banks will loan against 50% of the cost of inventory, leaving a large collateral shortfall the entrepreneur needs to come up with.
The result is the home-based entrepreneur will have to come up with a larger personal investment or use personal property to secure the loan. Banks will consider personal real estate or investments as collateral and occasionally even vehicles, jewelry and toys (boats, ATV’s, etc) depending on the project.
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