Every business requires money to expand and grow. For a home-based business, though initial financing is low, but it requires relevant funding to achieve success and stay ahead of the curve in competition.

According to a research, 69% of entrepreneurs in the U.S have their start-ups at home. As more people realize the benefits of a home-based, venture such businesses are becoming increasingly popular.

First there’s significant cost savings as the business does not need to rent out an office space or pay for utilities, so you save the cost and time involved in commuting to work every day.

Secondly, it is an excellent way to experiment with new business ideas without the risk of having a big set-up – once the project is off the ground and running, you can easily scale up and start operating from an office premises, according to your business’ needs.

Financing Challenges for Home-Based Businesses

While there are clear benefits to having a home-based business, there are also several challenges, one of the major one being finding the finance to run it. Although the initial costs for a home-based business are lower compared to other businesses, the average home-based business still costs around $2000 to $5000 to launch, says the U.S Small Business Administration.

The business may need to buy or rent some equipment and basic office furniture as well as invest in inventory and have a small marketing budget, to say the least.

Although it is hard for any small business to seek finance, it is even more difficult for home-based businesses as they have limited assets and no credit history to prove their worth, making them a risky investment for any lender.

So, if you find it hard to persuade your local bank for a loan, do not be disappointed because there are alternate financing options for small home-based businesses just like yours.

Ways to Finance Your Work from Home Business

Mentioned below are some ways to live your American dream – finance your work from home business.

1. Loans from family and friends

Many home-based businesses get financial support from family or friends. This option works well if you do not prefer external funding and seek help from people you know. However, there are risks involved. If the business doesn’t perform well, you are unable to pay back on time which may ruin your personal relationships.

The solution to this is to treat your loved ones the way you’d treat any lender – sell them your idea with a business plan and let them decide if they are willing to invest, without putting any emotional pressure.

Next, make sure to get all the legal paperwork done and try your best to keep up with the terms of the agreement.

2. Commercial bank loans

This option may not be available to all work from home businesses, especially if you have no collateral or prior experience in your field. But if you have a great personal credit score, an impressive business plan, and are willing to offer your personal assets as security, you can apply for a conventional bank loan.

Do not expect to secure a large amount of funding though – if you seek small amount of funds to start with, this can be a reasonable option.

3. SBA loans

What is an SBA loan? It is basically a financing program designed by Small Business Administration to help provide funding to small businesses who may find it hard to secure traditional bank loans.

The SBA itself does not directly provide loans, rather it encourages lenders to fund small businesses through long-term loans at low interest rates by guaranteeing that it will pay a proportion of the loan in case the business can’t do so.

Since the SBA acts as an intermediary, the risk is reduced and SBA is one of the best funding options out there for a home-based business.

4. Home equity loan

A home equity loan involves using your home as collateral against loan for your home-based business. One major advantage of this financing method is that it often comes with very low interest rates. The risk, however, is that your home is at stake if you fail to repay it. So, using this option requires careful consideration.

5. Angel investors

For a work from home business that is in the initial stage, it’s not just money that is needed. Professional advice can be equally helpful which is where angel investors come in handy. These individuals invest in small businesses that have the potential to grow into successful companies, in return for equity.

You can approach angel investors within your area and sell them your business idea but company valuation is necessary to determine the share of equity offered to the investor.

6. Peer to peer loans

These are loans from individuals given through lending networks for any purpose, including loans to run a business. They can be a good source of finance for home-based businesses that are finding it hard to arrange finance from elsewhere.

Whether you’re a consumer or lender, peer to peer financing offers financial rewards like no other. The picture above depicts how this lending option works.

It is, however, given as a personal loan so your credit rating is on the line and you are personally responsible for the debt. There are lending sites where you can look for peer to peer loans – the application process is simple and you can get funding up to $40,000.

7. Credit cards

Many entrepreneurs use their personal credit cards to pay for business expenses when there’s no alternate source of funds, as it is the quickest form of credit they have access to.

While the occasional use of a personal credit card causes no harm, (for example, if you need inventory to fulfill an unanticipated order), it is important to remember that it is an expensive form of credit, with interest rates a lot higher than other sources of finance. Also, failure to repay loans damage the user’s personal credit rating. So, it is best to proceed with caution.

8. Leasing of equipment

Every home-based business is likely to need some equipment to operate. If you are short on funds, leasing is a more feasible option than buying.

Although leasing is an expensive option if you consider the total cost over the years, it lets you avoid the high cost of purchasing equipment outright when establishing your business and you get access to the equipment in return for a fixed monthly payment.

Leases can be arranged for almost all types of equipment, from office machines to vehicles. You also have the option of buying the equipment for a nominal price at the end of the lease term, if you wish to do so.

9. Crowdfunding

If your work from home business idea is unique and creative and is likely to garner support of the masses, you can try crowdfunding as a means of securing funds for your venture. There are several websites where individuals sell their business idea to the public and in return, expect to receive financial support.

The graph shown above clearly depicts the rising trend of crowdfunding as it was forecasted to surpass VC after 2016.

Those who contribute can be rewarded in any way you wish, either by sending free samples of your product once it is launched or a small gift in return for their support. This way, you don’t have to repay the money you receive and your business gets publicity even before it creates a brand name.


While it is difficult to seek funds for a work from home business, it is very much possible given the above options. With so many success stories of home-based startups transitioning into profitable ventures, there is lots of hope and inspiration for any entrepreneur thinking of pursuing their business dreams. So long as you have a good business idea, you can find money you need, no matter how small your business is.

Get started to make your vision a reality!