Types of Loans for Home Based Businesses

More individuals are choosing to work from home, drawn by the lure of blogging and ecommerce. If you truly want to turn your new home business into a full-time job, however, you might need to plan on investing some start-up money in it. This money could be used to purchase inventory for an online shop or to help offset advertising costs, for example. In these cases, you may find yourself in need of a loan to help pay for your start-up home business costs. It’s best to examine your different loan types carefully to find the right fit for your needs. For home businesses, the two most common types of loans on offer are small business loans and home equity loans.

Small Business Loans

Because a business run from home falls under the category of a small business, it follows that a small business loan could be the right option. Although there are many different terms and conditions that could accompany small business loans, they are quite similar to regular business loans. You can expect to present a business plan to a loan officer. This should lay out your business background, goals, and projected financial figures. In addition to a business plan, a loan officer will also look at your credit rating, experience in your chosen field, and the likelihood of your business succeeding. One of the benefits of taking out this type of loan is that you don’t have to answer to a board as you would if you found investors.

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Your business plan is the most important part of landing a small business loan. Even if you have just started a website using basic e-commerce solutions, you must appear confident in your meeting with a loan officer. Be prepared to state how much money you need and why, along with the timeframe in which you expect to be able to pay it back. Be sure to be both conservative and realistic in your loan application. If you have difficulty making timely loan repayments, it could affect your credit score and ability to gain additional financing for your business in the future.

Home Equity Loans

Another type of loan that is typically used by home business owners is a home equity loan. This is only available to homeowners, however. This type of loan uses the equity you have built in your home as collateral for a new loan. It is considered to be low risk for the lender, making it easier to secure and with lower interest rates. One factor to consider is that in today’s tight housing market, lenders are more cautious about home equity loans. You may not be able to borrow as much with this type of loan as you would with a traditional small business loan. However, for many small businesses you don’t need too much start-up money at first. For example, if you are running an online business you may only need funding for ecommerce development, which can be quite cost-effective.

The specific terms and conditions of both types of loans will vary quite a bit between lenders, so it’s best to compare all options carefully. The right financing situation will depend on the type of home business you run as well as your projected sales goals.