Where to Find Homebased Expansion Capital

Does your corporate headquarters share space with your kitchen? Consider these funding options for your home business.

Q: My business is homebased. Will I be able to raiseexpansion capital?

A: Just because you own a homebased business doesn'tmean you're out of luck when it comes to raising money fromtraditional sources. In fact, banks and investors generallydon't care where you run your business, as long as you'remaking money.

Back at my old company, NetCreations, we got a $100,000 creditline from Citibank when we were still a five-person businessoperating out of my house. All the bank wanted to see was ourprevious years' tax returns and a list of our accountsreceivable (customer payables). The same goes for investors,especially those who invest in startups and early-stage businesses.In fact, a savvy investor may like the idea that you're savingmoney on office space and investing it in people and productsinstead.

Here are five road-tested strategies to raise money for yourhomebased business:

  • Bust open your piggybank. The first place to look forexpansion capital is your own personal savings. After all, if youdon't believe in your business strongly enough to invest in it,why should anyone else put money in? Personal savings typicallyconsists of cash, stocks and bonds, home equity, an insurancepolicy or a retirement plan. But you don't have to sell yourassets in order to tap your personal savings. If you ownsecurities, for example, you may be able to borrow against them bytaking out a low-interest margin loan with your stockbroker. If youown a home, you can take out a home equity loan on the part of themortgage that you've already paid off. You can also borrowagainst cash-value life insurance, your 401(k) retirement plan andyour individual retirement plan (IRA).
  • Take out a credit line. While companies often take outbank loans to acquire property, equipment, furniture and otherbig-tickets items, businesses often turn to short-term credit linesto finance working capital needs. If your company has been inbusiness for several years and you're showing consistentprofits, you may be an excellent candidate for a credit line.Unlike a loan that locks you into monthly payments, a credit lineallows you to withdraw money when you need it-say, to cover thisweek's payroll or to pay your bills until a big checkclears-then replace the money when cash becomes available. You onlypay interest on the money you borrow. While you may never have touse the line, you'll sleep better at night knowing thatit's there.
  • Put it on your card. Many successful businesses havefinanced their growth with credit cards. While banks generally wantto see a two- or three-year track record of profitability beforethey'll lend you money, credit cards let you buy what you needright now. But beware: Though the low introductory rates can betempting, eventually you're going to have to pay the piper-atrates that are often in the high double-digits. Credit cards shouldbe used for routine purchases like office supplies and phone bills,not for buying big-tickets items like computers and officefurniture.
  • Go ask Mom and Dad. If you've exhausted yourpersonal savings and you need more money than the bank or creditcard company is willing to lend you, it may be time to look foroutside investors. This involves selling a piece of your company inexchange for the cash you need to take your business to the nextlevel. Friends and family are generally the best place to startwhen raising equity capital. They tend to ask fewer questions andare typically more concerned about helping you succeed than theyare about getting a huge return on their money. On the other hand,if your business goes bust, you might not get invited to nextyear's Thanksgiving dinner.
  • Talk to VCs and angels. Once you've tapped yourfriends and family, the next step is to approach angelinvestors-high net worth individuals such as your doctor, yourlawyer or a successful businessperson in your community. Often,these angels form clubs and hold regular meetings to listen tocompanies' pitches. Companies looking for bigger infusions ofcash often turn to venture capital firms-companies that raise moneyto invest in startups and small businesses with the potential forrapid growth. The advantage of taking venture capital is that itlets you grow your company faster and take bigger risks than youcould afford to take on your own. The downside is that you may needto give away so much equity that there isn't too much left whenyou sell your company or take it public. Also, venture capitaliststypically want to get their money in and out of your business inthree to five years-whether you still want to run it or not.

Rosalind Resnick is the founder and CEO of Axxess BusinessCenters Inc., a storefront consulting firm for startups andsmall businesses. She is a former business and computer journalistwho built her Internet marketing company, NetCreationsInc., from a two-person homebased startup to a public companywith $58 million in annual sales.

The opinions expressed in this column are those of the author,not of Entrepreneur.com. All answers are intended to be general innature, without regard to specific geographical areas orcircumstances, and should only be relied upon after consulting anappropriate expert, such as an attorney or accountant.

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