Did you fund your start-up with a traditional business loan? Probably not. Typically, home businesses seek smaller start-up loans than are profitable for financial institutions. Simply put, lenders can't make enough money from a $5,000 or $10,000 loan to make the risk worth their while. Home business start-ups also have difficulty securing traditional small-business loans due to their lack of significant tangible assets, such as equipment, real estate and receivables, to use as collateral. The SBA offers a MicroLoan Program primarily for start-ups owned by women and minorities in inner cities and rural areas. But most homebased business owners fund their own start-ups using their savings, personal loans and lines of credit, loans from family and friends, and credit cards.
If you've started your business using your own funds, you may be tempted to cover the cost of your equipment and overlook other critical components to success, including sales and marketing programs. Businesses that use bank financing to cover their start-up costs rarely make this mistake, because to obtain a bank loan you must have an effective business plan that details important information such as who you'll market to, why they'll want to buy from you, your sales and marketing strategies and marketing budget.