How To Get Money To Start Home - Based Business

To start a home based business, you need money. You might be thinking why we are telling you this. Doesnt everyone know this? Youre right. But, according to United States Small Business Administration, the second reason for failure of business is inadequate funds. Whats the first? Its poor management!

Here, we wont tell you about effective business management, but will educate you about how to manage capital to start home based business.

You Have Two Choices

There are two choices when it comes to collecting funds for your business debt financing and equity financing. In order to know the type of financing your business requires, you need to calculate its debt-to-equity ratio. Whats this? Its the money borrowed in comparison to the money invested in business.

The more the investment, the better your business is for financing. A high equity-to-debt ratio implies that you should go for debt financing. However, a high debt-to-equity ratio implies that you should increase your equity investment or capital to gather more funds to start a home based business.

Equity Financing

The popular equity financers to start home based business are family, friends, employees, colleagues, or customers in your field. Venture capitalists are the most popular equity financers. They are institutional risk takers. They may either be affluent people, or financial institutions, or government resources. They generally specialize in particular industry. They are actually eager to finance you for your business. However, most of them may choose to finance businesses that are 3-5 years old and show immense potential growth.

We would also like to enlighten you with the fact that venture capitalists are bombarded with thousands of potential businesses seeking finance, but they finance only a selected few. Moreover, some of them contribute little in business decisions, while some may wish to heavily influence the manner in which you start home based business.

Debt Financing

The sources of debt financing are banks, commercial finance firms, savings and loans, and United States Small Business Association. Your family and friends can also help you with finances to start home based business. However, financial institutions still rule the roost when it comes to giving financial aid, as they are the oldest sources of getting money. Besides, these institutions tend to provide short term versus long term financial help for aspiring businesses.

So, you need to check your pocket before deciding to start a home based business. Not having enough money doesnt mean you have to drop the idea of starting business. You can always borrow. However, managing your finances efficiently is the key to running a smooth business. Once you master your management skills and arrange for funds, you are ready to start home based business harboring bright prospects.

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