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What to Know About Business Loans For a Home Based Business

Entrepreneurs may ask if a home based business can acquire a business loan? The truth is that any business can get a business loan if they meet expectations.

Business lenders are all looking for the same things. These are the same things that a mortgage lender or car lender is looking for. They want to see that one is creditworthy, that they have a capability to repay, and that they can collateralize the loan.

With a house or car loan, the collateral is self-evident. With a business loan it may not be that easy. One could put up what they are purchasing (inventory or equipment) if the lender is accepting of the idea. But many times they will want something outside of the deal like personal property. So, before putting up one’s home it may be cheaper to use a mortgage refinance rather than using a home to collateralize a business loan. Plus, there are personal tax advantages to a mortgage.

The ability to repay will be shown in the business’s business plan. Yes, even home businesses need to develop a business plan. It would be better that a business has a history to show and hopefully the current history is profitable. Current financials will go a long way to making a lender comfortable about lending to a home business. Should this be an at home start-up, then one will definitely need to spell out one’s business plan. Be sure to include why having a home office makes more financial sense than having a commercial property office.

Creditworthiness is key too. Not only the business’s credit but a lender will examine the personal credit of the owner(s). This is why it is important that one keep their personal credit score up if they desire to be an entrepreneur.

Overall, if one can show all three aspects covered then they should be able to get a business loan, even if they are a home based business. However, should they be weak in any category, being a home based business will make it double-tough.