Entrepreneurs may ask if a home-based business can take out a business loan. The truth is, any business can get a business loan if it lives up to the hype.
Commercial lenders are all looking for the same things. These are the same things a mortgage lender or auto lender looks for. They want to see that you are solvent, that you have the ability to pay, and that you can guarantee the loan.
With a home or car loan, the collateral is self-evident. With a business loan it may not be so easy. One could put what one is buying (inventory or equipment) if the lender agrees to the idea. But many times they will want something outside of the deal as personal property. Therefore, before putting up one’s home, it may be cheaper to use a mortgage refinance instead of using a home to secure a business loan. In addition, there are personal tax advantages in a mortgage.
The ability to pay will be shown in the company’s business plan. Yes, even home businesses need to develop a business plan. A business would be better off with a track record to show for it and hopefully the current track record is profitable. Current finances will go a long way in making a lender comfortable with home business loans. If it is a home-based start-up, then detailing one’s business plan will definitely be necessary. Be sure to include why having a home office makes more financial sense than having a commercial property office.
Solvency is also key. Not only the credit of the business, but also a lender will examine the personal credit of the owner(s). That’s why it’s important to keep your personal credit score high if you want to be an entrepreneur.
In general, if one can show all three things covered, then they should be able to get a business loan, even if it is a home-based business. However, if they are weak in any category, being a home based business will make it doubly difficult.