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Financing Options For Home-Based Businesses

There are many options available for financing home-based businesses however each has their pluses and minuses which should be considered and may ultimately affect the overall success of your business. Some options are easier than others such as soliciting friends and family but regardless of which route you go you will more often than not require a business plan to inform potential lenders of the various operating expenses and a timeline for profitability.

A well-thought-out and thoroughly documented business plan will be the most important piece of information when seeking financing for your business. It is the summary which outlines all expenses and provides a timeline of when the business will become profitable and ultimately whether or not the endeavor is worthwhile. Whether it is a family friend or the Small Business Administration providing a loan, each one will want to know specifically how the money will be spent and if it will be spent wisely.

Self financing is often the most common and sometimes only means available for entrepreneurs to finance their home-based businesses. Either do to poor credit history, lack of experience or stringent loan requirements sometimes self financing is the only way to get a business off the ground. Various forms of self financing include the use of credit cards, dipping into a 401(k) or other retirement account or using emergency cash reserves. None of these situations are particularly ideal due to the inherent risk of starting a business in which 75% fail within the first year. Unfortunately if other forms of financing fail to materialize and you're passionate about your dream of financial independence these may be the only means available in terms of financing.

Fortunately, seeing the importance of entrepreneurship and small business endeavors, the United States government through the Small Business Administration provides not only financial resources but training and counseling when starting a home-based business. Depending on the type of business being started and whether or not you are a woman or minority, different types of loans are available for home-based businesses. Consult your local SBA office to get more information about financing options and payback terms and whether or not you qualify for an SBA loan.

Government grants are the ideal option when seeking financing for your home-based business. While grants require significantly more work to both apply for and receive it can make a world of difference and eliminate many barriers of entry. Normally, government grants target underserved or disadvantaged portions of the community such as minority, women and low income individuals. As part of the grant application process, the government will almost always require a comprehensive business plan and projected financial report. This is to ensure limited government resources, which have no expectation of being repaid by the recipient, are appropriately rewarded to those individuals most likely to succeed through preparation and dedication. It requires a significant amount of work to receive government grants but that is part of the vetting process to ensure only the most qualified individuals receive this type of financing.

As you noticed there are many types of financing options available for home-based businesses. Additional resources are sometimes available such as bank and government issued loans and family and friend loans all of which should be considered and are viable options for financing home-based businesses. The key is to thoroughly analyze each option to pick the one that is best suited for your business and your current economic situation. Seeking help from the many business-related resources available both from the government and social organizations can help determine which financing option is best suited for you and your business.