How to Get Financial Help to Start a Home Business

You can secure financing for your home-based business from many sources.

When an entrepreneur gets an idea for a home business, one of the first things that needs to be addressed is financing. When seeking financial help, you should consider looking at several different sources rather than relying on only one or two options. It is possible you will need to diversify your financing to get all of the capital you need, so it's critical to have a plan to secure home business financing.

Instructions

1. Develop a business plan that outlines the focus of your business and includes a biography of each of the top executives, a sales and marketing plan, a description of how you can compete with other businesses in your field, immediate start-up costs and income projections for the first three years.

2. Work with an attorney to create a share agreement you can sell to interested investors. It should outline how much of the company each share represents, what each share costs, what kind of return the investor will receive and how the investor will be involved in the operation of the business.

3. Apply for any federal grants that your business may qualify for based on the criteria set forth in the resource listed at the end of this article.

4. Compare the grant money you will receive with your estimated start-up costs. The difference is what you will need to get from private investors and lenders.

5. Analyze how much of your personal funds you can contribute through personal savings, money added from your monthly income and from personal loans such as home mortgages or equity loans.

6. Sell shares of your company using the drafted share agreement. Your goal should be to obtain at least 50 percent of your start-up costs through grants, personal finances and sales of shares. If you can secure more than 50 percent, then this will help you defer any long-term loan costs that you will incur when you take on lender financing. Speak to family and friends about investing in your business first, but always use the share agreement so that all parties understand the terms of the agreement.

7. Apply for lender financing to get the remainder of your start-up costs. Apply to multiple lenders so that you have options to choose from.

Tips & Warnings

• Never accept any financing that is not accounted for in a contract. It is important to have terms for all investments so that you know what people are expecting in return.

References

• Start Up Nation: Financing Options for a Start Up Business
• Power Home Biz: Funding Your Home Business - What Investors Want
• "Entrepreneur" Magazine: A Silver Lining for Small Business Financing

Resources

• Small Business Administration
• Business.gov: Search for Business Grants and Loans