Obtaining home business financing is an important first step to running your own home business. You can try to get funding from venture capitalists, banks or angel investors. A small business association can also be a helpful resource. Finding investors can be easier than you might think when you present potential investors with good proposals.
Venture Capitalist Investors
A venture capitalist is an individual or investment firm that makes venture investments. In exchange for the high risk that venture capitalists assume by investing in small and start-up companies, venture capitalists often get control over major company decisions and partial ownership in the companies in which they invest. Venture capitalists often also provide managerial and technical expertise as well as capital.
While venture capital can help new companies that are too small or too new to be able to raise enough capital to get started without financial assistance, it is not the answer for all home businesses. Venture capitalists reject approximately 98 percent of opportunities presented to them.
Angel investors are wealthy individuals who invest in small businesses, and provide advice to the businesses in which they invest. Angels usually invest in businesses that are in areas of their own expertise so they can provide guidance. Unlike most venture capitalists, angel investors do not demand control of the companies they back. Angel investors support businesses that have solid business plans that will lead to positive cash flow and profits in the near term.
Small Business Association Loans from Banks
Banks can provide Small Business Association (SBA) loans for home businesses. Small Business Association loan amounts can vary from $5 thousand to $2 million. If you default on your SBA loan because your home business is not successful, the U. S. Small Business Administration will reimburse the bank for a percentage of your loan.
Small businesses can apply for different types of SBA loans including:
- commercial mortgage loans for the purchase, construction or financing of commercial properties
- equipment term loans for the purchase or financing of office or business equipment
- capital term loans for franchising a start-up business
- a new financial product named the Greenline Program
The Greenline Program can provide a short-term working capital line of credit for up to five years.
If you plan to apply for an SBA loan from a local bank, it is recommended that you choose a bank that has prior experience processing SBA loans to ensure the process will go smoothly. Be prepared to provide background information about your company, its owners, its business goals and its monthly cash flow projections. Your lender will expect you to provide documentation that will prove how you will be able to repay your loan over time from the income from your small business. Once your application is approved, which sometimes can happen within 48 hours, you will be on your way to running a successful business.
After you have the financing you need to get your business up and running, make sure that you meet the requirements of any commitments you made in order to gain your financing. Follow your business plan, and respect the rights of your investors. The right investor can be the key to the long-term success of your business.