Operating a home-based business sounds so romantic. No boss, setting your own schedule, a commute that’s steps from your bed – those who have it certainly live the dream, right?
Well, not exactly – like any other business, there are hurdles you’ll need to jump to make it all work. Self-discipline, prospecting for clients/customers, and sourcing office supplies are just a few issues.
However, as your business grows, you’ll bang up against one of the biggest roadblocks of all – funding. Prototyping, buying stock, and paying your growing remote team are all things that require capital.
If you don’t have a wealthy family member, you’ll have to go to lenders, hat-in-hand. Sadly, your timing couldn’t be worse – Australia is teetering on the edge of its first recession in a generation. Home prices are stagnant or declining, so there goes your only shot at getting a secured loan.
Don’t lose hope, though – all is not lost. The dearth of loans being handed out by banks means non-bank lenders are thriving. They deal in unsecured loans – if you have a high credit score, healthy cash flow, and so forth, you stand an excellent chance of getting funded.
In today’s blog, we’ll share how you can approach private lenders, as well as raise money from other sources.
Small business owners can lack documentation needed for bank loans
Running your own home-based business has
many benefits. However, it comes with its fair share of drawbacks as well. Of
them, funding is one of the biggest obstacles to overcome. Despite the fact
employment is becoming less stable, banks view small business lending as a
higher risk activity.
It’s truly ridiculous that, in 2019, they assume that because someone has a
job, their company is employing them for life. Of course, you and I know the
reality of the situation. Layoffs are far more common these days, with the
average employee spending only three years in a position.
When their employer terminates a worker, their income can drop to zero. As an
entrepreneur, when you lose a client, you only lose a percentage of your
revenue. Yet, WE are the RISKY ones?
But, we digress. The fact is, if you don’t have a demonstrable history of
consistent income, getting a loan can be difficult. You face a long list of
issues to overcome (e.g., work/life balance, distractions, etc.) already.
Worrying about funding shouldn’t be one of them.
businesses need loans?
If you’re a freelancer, you might be
scratching your head right now. “How many businesses NEED a bank loan to work
from home?” you might wonder.
Far more than you would ever realise. As you read this, entrepreneurs around
the world are running businesses worth MILLIONS of dollars from their house.
Distributed teams have given birth to the micro-multinational. Today,
it’s possible to outsource manufacturing to Vietnam, marketing to America, and
copywriting to the UK. Everyone does their work where they are – no offices are
However, funding these operations takes considerable capital, especially in the
beginning. So, avoid products, and you’re good? Well, not quite. Many other
home business models may also require an injection of capital to work.
To illustrate our point, let’s talk about two business models which often need
a financial kick-start.
Case study #1: The eBay seller
Is selling in your blood? If so, flipping
goods on eBay might be a viable business. However, even if you do a good job
selecting your niche, profit margins can be tight. When you’re only making a
few dollars/unit in net profit, selling ten per day won’t do.
To make these numbers work, you’ll need to scale your business. For that,
you’ll need to buy more significant quantities of product. And, you’ll need
warehouse space to store it all. These tasks require THOUSANDS of dollars you
might not have.
To take your eBay business to the next level, you’ll need funding. Once you get
it, you’ll be able to greatly increase production capacity. From that point on,
revenues can fund further growth.
Case study #2: The affiliate marketer
Those who love selling but don’t enjoy
packaging/mailing product often gravitate to affiliate marketing. What is
affiliate marketing? In short, it is the practice of promoting someone else’s
product on a website you control.
When someone clicks your link AND buys that product, you get a cut. This
payment can be as high as 75% on services like Clickbank.
Sounds lucrative, yes? After all, you can set up a website for as little as
$5/month through Bluehost. Because of this, it’s easy to see how affiliate
marketing is so popular. However, ease of entry makes it incredibly DIFFICULT
to make a good living at this profession.
Once you’ve mastered niche selection, site traffic is your next problem. To
bring in qualified traffic often requires considerable ad spends on Google and
Then, ironically, after solving that problem, elevated site traffic become an
issue. Remember that $5/month hosting package? When faced with a surge in
visits, that plan will collapse your site like a cheap tent. To host the number
of visitors needed to meet your income targets, you’ll need a more expensive
plan. Premium plans often start at $35/month – per SITE.
As you can see, costs can add up. To generate a decent income, you’ll likely
need cough up several thousand dollars upfront to build the required
How can you raise money without a bank loan?
So, the loan officer laughed in your face
when you applied for a business loan – now what? Fortunately, you have several
alternatives to fall back on these days. Let’s review a few of them, shall we?
Friends & family
Are you a few thousand dollars shy of
meeting your business goals? If you’re fortunate enough to have well-heeled
family members or friends, pitch them. Unlike banks, loans sourced this way
come with extremely favourable terms, including low/zero interest.
On the other hand, losing everything can
lead to friction with those you love most. So, unless you’re supremely
confident in your idea, or your loved ones understand the risks, avoid this
From gadgets to board games, the list of
businesses that have gotten their start from crowdfunding is practically
endless. The mechanics are simple: To get funded, you need to hit a specific
goal by a certain date.
Whilst it seems people these days throw
cash at the daftest ideas, it’s not as easy as it looks. To meet your funding
goals, you’ll need serious social media and marketing chops. And if you get
your money? Youll then have hundreds of people counting on your success. No
Private non-bank lenders
Don’t have a rich uncle? Failed miserably
at arousing interest on Kickstarter? Don’t despair – if your business has
decent numbers, you can acquire funding from private non-bank lenders.
Entities like Prospa offer business
loans for sole traders that are unsecured. Unlike secured loans
offered by banks, you don’t need collateral. Instead, other indicators – like
credit score, cash flow, and turnover – are all the assurance these companies
Think you won’t qualify? These companies
offer loans to companies who’ve been in business for as little as six months,
so get on it!
solve problems for a living
If you’re in business, you’ve committed
yourself to solve problems for a living. If you take on these issues without
hesitation, how are funding challenges any different? Approach this issue the
same way you tackle your client’s problems, and you’ll figure it out!