Small Business Loans for Home Businesses

Home businesses are a broad category, with dozens of ideas out there ranging from selling homemade products to teaching classes online. Even with minimal overhead -- after all, when you work from home, you don’t need to pay rent on an office -- you may find yourself in need of funding for supplies, hiring employees, or other expenses as you grow.

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Longtime home businesses and new ones alike may need funding for several reasons. If an unexpected economic crisis such as the COVID-19 pandemic decreases your home business’s sales, you may need extra funding to stabilize your business. On the other hand, if a crisis makes people more likely to turn to your company, you may need funding to support rapid growth.

Whatever your reasons are for needing home business funding, low-cost funding options such as small business loans for home businesses can help you meet your goals. Learn more about your options below.

Financing Options for Established Home Businesses During the COVID-19 Pandemic

In March 2020, upon many states instituting lockdowns in response to the COVID-19 pandemic, Congress and the White House introduced the CARES Act. This legislation launched a new Small Business Administration (SBA) 7(a) loan program, the Paycheck Protection Program (PPP). Through the PPP program, small businesses could apply for loans to stabilize their finances during the economic crisis. Although the program’s first round of applications ended on August 8, 2020, more loan opportunities may soon be available.

Following the August closure of the PPP program, Congress has been debating new legislation for small business funding. Stay updated on these programs via the SmartBiz Small Business Blog, which details the latest on loan opportunities and forgiveness. Additionally, visit the SmartBiz Loans COVID-19 information center, Small Business Loans & Resources in Times of Coronavirus (COVID-19), to learn how your home business can use PPP loans.

Applying for a first or second PPP loan in 2021

The SmartBiz streamlined PPP Loan application can help you fill out your application, upload required documents, and submit them to the bank quickly.**

SmartBiz can help you apply for these funds. We have specialized in SBA loans since 2013 and our network of banks has funded nearly $4 billion in SBA, PPP, and bank term loans.

Whether this is your first or second PPP loan, SmartBiz can help! Businesses with less than 500 employees that are negatively impacted by the pandemic can apply for their first PPP loan.

The program expires on May 31, 2021. No applications will be accepted after that date. Keep an eye on the SmartBiz Small Business Blog for updated information about an extension if approved by congress.

Funding challenges and opportunities for home businesses

Before you learn about the types of home business funding options detailed below, you should understand the funding obstacles you may face. If your company is somewhat new, lenders may hesitate to approve you for loans since you can provide minimal hard evidence of projected long-term success. Likewise, a new home business has relatively little overhead, meaning that you can’t easily show lenders how well you stay atop your monthly bills and thus make a great borrower.

Although some lenders may hesitate to fund your home business due to your lack of overhead, this quality can sometimes be advantageous for home business funding. Your lower overhead costs theoretically allow for larger profit margins, potentially reducing your need for funding (or at least the amount of funding you need). Of course, if you do need funding, you have plenty of options, as explained below.

Financial options for home businesses

Through the below funding opportunities, you can obtain affordable home business loans. Many types of SBA loans are available, and you can also pursue non-government funding. No two funding options have the same loan approval rates and periods.

The SBA 7(a) loan program

If your home business qualifies for low-cost SBA 7(a) loans, this funding route might be your best option. SBA 7(a) loans are highly regarded for their low monthly payments, low rates, and long terms. You can use them to easily grow or stabilize your home business by putting your SBA 7(a) loan proceeds toward:

  • Working Capital – Working capital is a key business metric. It is the difference between your current assets and your current liabilities, and it’s also the amount of cash your company has immediately available to use.
    You should avoid having negative working capital, even in economically precarious times. Through your SBA 7(a) loan proceeds, you can work toward positive working capital by purchasing new equipment or expanding your team.
  • Debt Consolidation Loans – SBA 7(a) debt consolidation loans allow you to refinance your home business’s current merchant cash advances, daily or weekly payment loans, short-term business loans, or high-interest business loans.

Advantages of SBA 7(a) loans for home businesses

Lending experts often tout SBA 7(a) loans as the “gold standard” since their low rates and 10-year terms (25 years for commercial real estate) make them affordable and easy to repay. Other reasons that experts swear by SBA 7(a) loans include their:

  • Availability in all 50 states
  • Affordable monthly payments
  • Wide use of funds
  • Lack of prepayment penalties

Requirements for home businesses to apply for SBA 7(a) loans

Your home business must meet the below requirements to qualify for SBA 7(a) loans:

  • You must be a U.S. citizen or lawful permanent resident
  • You must be at least 21 years old
  • Your personal credit score must be above 650
  • You must have no foreclosures or bankruptcies in the previous three years
  • Your home business must be based in the U.S.
  • Your home business must be at least two years old
  • You and your home business must be on-schedule with all government-related loan repayments
  • Your home business must have no outstanding charge-offs, recent settlements, or tax liens

Some SBA 7(a) loan providers will have their own unique requirements not found with other lenders. For example, some loan providers will ask that you present your business plan, but SmartBiz Loans does not require this.

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How to apply for an SBA 7(a) loan for your home business

Step 1: Begin by confirming that you meet the above SBA 7(a) loan requirements. Learn more about these requirements via the SmartBiz Loans page about SBA Loan Requirements for Existing Businesses.

To discover how your business financials stack up for funding, use our easy-to-use online tool. SmartBiz Advisor™ helps you track the financial health of your business and learn how banks typically evaluate your business.* SmartBiz Advisor also recommends ways to help you improve your credit and strengthen the financial health of your business as needed. Read feedback from real SmartBiz Advisor users and sign up here.*

Step 2: Gather all your required paperwork – it might be a lot. You may want to ask a financial expert such as an accountant or bookkeeper to help. Learn more about your SBA 7(a) loan document needs via the SmartBiz Loans Guide to SBA Loans.

Step 3:  Decide on a lender based on their:

Availability

No matter how enticing of loan terms you encounter, don’t borrow from lenders who aren’t readily accessible to you via phone or email. Your lender should also set you up with a representative who knows your industry, home business, and application in and out.

Reviews

Go through your lender’s TrustPilot, Google, and Consumer Affairs reviews to determine whether other borrowers have enjoyed working with your lender. You might even see other home business owners among the lender’s reviewers.

Transparency

A trustworthy lender will make no attempts to hide your loan’s annual interest rate and APR. These numbers are fundamental to a loan’s quality, so a lender unwilling to share them may not be worth the risk.

Obvious loan terms

Fine print that you can’t easily understand can be a red flag. Complicated fine print often disguises unfavorable payment schedules and loan costs. You want to see the following clearly stated: total loan amount, collateral requirements, any applicable prepayment penalties, and your payment frequency and amounts.

Fees

Your loan fees should include interest and repayment but little else. If you encounter excessive fees, look for a different lender. You should also choose a different company if you see terms stating that fees are due after your loan’s lifetime or funding.

The SBA 504 loan program

If your home business needs low-cost funding for expansion or modernization, consider the SBA 504 loan program. For example, if your home business needs new computers and software to offer services of the same quality as your competitors, you can use an SBA 504 loan to cover the costs of obtaining these items.

Additionally, SBA 504 loans can be helpful if your home business meets the public policy goals of your local community development corporation (CDC). If it does, your CDC and 504 loans can cover up to a combined 90% (40% from your CDC, 50% from your loan) of your expansion or modernization costs. You will pay any remaining costs via a down payment.

The SBA microloan program

If your home business is a very small business (a.k.a. microbusiness), you may qualify for the SBA Microloan Program, through which you can obtain loans of at most $50,000. You can use SBA microloans for all business needs except commercial real estate purchases and debt payments.

Non-SBA loans and other funding options

While SBA loans are usually the best possible funding option for home businesses, you can seek other types of funding if you don’t qualify for SBA loans. That said, these other funding options may have higher rates, larger payments, and shorter terms. They include:

Bank term loans

Through bank term loans, you can get funding as quickly as through SBA loans. Use them to obtain working capital or refinance your debts. When choosing a bank term lender, inquire about prepayment penalties, rates, potential loan amounts, and repayment terms.

Merchant cash advances

If you accept payments via credit or debit card, merchant cash advances (MCAs) may be available to you. Through these loans, your card provider will give you a loan that you’ll repay by funneling a small portion of all card transactions back to your provider. Alternatively, you can set up a standard repayment plan in regular installments.

The convenience of MCAs comes with a catch: They tend to have extremely high APRs. Read more about MCAs via the SmartBiz Loans blog What You Need to Know About an MCA.

Business lines of credit

When you use business lines of credit, you don’t have to spend all the money given to you. Your maximum will be proportional to your credit score, though it will be less than the funding you could access through a bank term loan. You’ll only pay interest on the funds you use, so not using your entire loan may be smart.

You can borrow money from your business line of credit as often as you’d like until you reach your maximum. You also likely won’t have collateral requirements to obtain business lines of credit. Learn more via the SmartBiz Loans blog Small Business Lines of Credit Pros and Cons.

If it sounds like business lines of credit resemble business credit cards, that’s partially true. Both funding options are, indeed, revolving lines of credit. However, their similarities end there. For example, you keep your credit cards if you max them out, whereas business lines of credit cease once you reach your maximum. Additionally, business lines of credit lack the spending rewards found among certain business credit cards.

Why Choose SmartBiz Loans?

Need funding to rebuild your business? Don’t waste time going from bank-to-bank filling out multiple applications. SmartBiz helps you find the best financing for your unique needs whether that’s an SBA loan, Bank Term loan, or other financing.  About 90% of qualified applications we refer to banks are funded and our financial professionals are on hand to answer your questions. Discover if you’re pre-qualified here without impacting your credit scores** and read the SmartBiz 5-star customer service reviews on TrustPilot.

 *The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes only. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.

**We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.

 What you need to know: The information provided through SmartBiz® University and the articles contained therein are for educational purposes only. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.