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Last Updated on July 13, 2020 by Work In My Pajamas
Planning to launch your own business? Before you start building a site or telling friends, you need to start by gathering your initial funds.
But how much do you need to start?
Home-based businesses need about $2,000 to $2,500 as capital, which can be a large sum to some people. After all, many live paycheck-to-paycheck, leaving no extra at the end of the month. Furthermore, about half of Americans have nothing in their savings account.
The good thing is that there are many methods of financing to help them get their business started. Keep on reading to learn how you can fund your home business without going to the bank.
In This Post:
1. Apply for SBA Loans
The U.S. Small Business Administration grants small business financing to qualified entrepreneurs. It provides numerous benefits over traditional bank loans as it has low interest rates, flexible repayment terms, and access to large capitals.
You and your business must meet its list of criteria, though. The SBA doesn’t grant SBA loans to businesses with their own means of getting the money they need. It must fit the definition of a small business under its local laws. The SBA 7(a) loan program is one of the most popular small business lending options, so you might want to start checking the requirements for loan approval if you’re considering this option.
2. Borrow Money from Your Family and Friends
Your friends and family will likely want to support you in your business, and those who have the money will likely want to help you out with business financing. Before approaching them, though, have a business plan in place. Pitch it to them like you would an investor, treat them like an investor, pay them back like you would an investor.
This is a good way to avoid paying interests as most friends and relatives won’t add interest to your loaned money. However, make sure you’ll be able to pay them back on your agreed date or when they need it to avoid burning bridges. Some will also want to be like a real investor who will lend money in exchange for something.
3. Find an Angel Investor
If you can’t raise enough money from friends or you don’t want to approach them, you can find an angel investor instead. These are individuals who fund start-ups in exchange for equity or convertible debt.
You’ll have to prove your business will be profitable and worth their time. Pitch a good business plan backed with proper research. You must also demonstrate enough knowledge in your field for the investor to trust you and finance your business.
4. Try Crowdfunding Platforms
Crowdfunding platforms help entrepreneurs jumpstart their business with the help of strangers. The way it works is that you pitch your business idea and publish it on a website. Investors will then pledge an amount to help you.
Entrepreneurs usually offer incentives in exchange for their investment depending on the amount they pledged. For example, in a techy wallet project, a pledge of $100 will get you a piece of the final product.
Supporters don’t get long-term benefits out of the projects, but that doesn’t stop the 16,062,482 backers in Kickstarter projects alone. Besides, many people only like the feeling of being able to help out someone in need.
5. Use Your Credit Card
Many will advise against using a credit card, but if you’re wise enough, you can use it to your advantage. It can improve your cash flow and extend your accounts payable period if you take advantage of its terms.
The downside of using a credit card is that it earns interest for every penny you weren’t able to pay back on the due date. You also risk destroying your credit score if your business doesn’t go as planned or if you’re not too knowledgeable on the terms of your card.
Be wise when using credit cards, buy only the bare minimum with your credit card. Use all the money you’ll then earn to pay it back. When your business starts doing okay, you can then buy more things – this time, with cash from your profits.
6. Tap Into Your 401(k)
Did you know that you can tap into the money you’ve accumulated in your 401(k)? You can then use it for your business, but you have to follow the right, legal steps.
It can be quite complex with all the legalities around it, but it should be simple enough. You’ll need professional help, though, especially if you don’t know how it works.
One thing to note here is that you’re gambling your retirement funds away. If your home business fails, you’re going to have to build your retirement plan from the ground-up.
7. Pre-sell Your Products or Services
If you need money to buy your initial inventory or to buy some equipment, consider pre-selling your products/services. Customers will have to pay upfront for your offering that they’ll receive at a later date. The money you’ll earn can get you the needed tools, ingredients, or such to fulfill your initial orders.
Many who bake as a side hustle use this method as they usually already have an oven and other tools in the kitchen. If they want to expand, they can stash all their profits away for use in their business.
Doing this, you may not make a hefty profit yet at the start, but once you’ve bought all the equipment you need, you’ll start seeing profits. Then, you may use your profits to expand your home business. Many people don’t tap into their profits until they’re producing enough to be able to keep some of the profits.
8. Get a Cash Loan
Many institutions offer cash loans to almost every individual, including those with bad credit. This can be a good way to finance your business if no other options are available to you. It’s also like hitting 2 birds with 1 stone as you can also rebuild your credit if you’re diligent in paying them back.
Before you decide to get a cash loan, make sure you know all the terms of the loan and all the fees you need to pay back.
Which of These Methods of Financing is Right for You?
If one or more of these methods of financing are applicable to you and your business, review the terms of each one before you decide on what is best for you. Pick a debt you can live with even if your home business fails.
Check out our other guides for additional information. You might also have interest in other ways to make money from home, such as blogging or affiliate marketing.