Street Smart Financing For The Home-Based Entrepreneur

By Ted Wooley

Home-based entrepreneurs in need of business capital have many
different, often unconventional, ways to raise money. After reading this
article, there will be no room for doubt in the mind of even the most
ambitious pessimist about raising business capital. Any business owner
can raise money if he or she is willing to put in the effort. Here we
introduce you to some creative ways to raise money for business capital.

Trade Credit

Credit on a good or service that you require for your home business
— known as trade credit — is a common way to increase cash
flow. Standard terms for payment are usually between 30 and 90 days. To
get trade credit, provide a marketing plan for generating revenue from
your inventory or other business purchase during “float” time (the
period of time between order date and the date payment is due to the
supplier). You may be surprised to see how many suppliers will give your
business credit if you present a credible, home-based image.

Use a Contract, Purchase Order or a Letter of Intent

Convince your supplier or other person whom you do business to grant you
credit by showing your own customers’ written expression of desire to
purchase. The best documents to substantiate this are legally binding
contracts or purchase orders. If not obtainable, you can ask your
customer to write a letter of intent to purchase an approximate amount
of your product within a specified time period. Bottom Line: Convince
your supplier you can move their goods or services and that they will
get paid.


Firms or individuals called “Factors” convert your accounts receivable
into working capital, either immediately upon invoicing or when invoices
come due. Here’s how it works: You submit your customer’s order
information to the factor for credit approval. Typically, the factor
will purchase your receivables and advance you 80 percent of their face
value. The remaining 20 percent is held as a reserve to offset
uncollectable amounts. The reserve is released after the bill is paid,
less any deductions for uncollectables and the factor’s service fee,
known as a discount (usually 1.5 to 5 percent).

Bank Financing of Receivables

The major difference between banks and factors is that banks don’t
purchase receivables; they lend against them. Since you remain the owner
of these accounts, you must do your own credit checks and absorb any
collection cost. Most banks forward 80 percent of the receivables face
value while holding 20 percent as a reserve for uncollectible amounts.

Tap Personal Resources and Credit Cards

One obvious way to raise money is to sell personal or business assets.
The process is simple and it works. A personal resource available to
just about any entrepreneur is a credit card. Few successful businesses
have not had to, at one time or another, tap credit cards for cash
advances and business purchases.

Defer Payments

Pay a personal visit to the accounting or loan department of your bank
or mortgage servicer and tell them you would like to defer next month’s
payment, and just pay interest on the remaining principle. The net
effect is that principle payments are deferred, the creditor earns more
interest, and you face longer payoff dates and higher final payment
amounts. But you will have more money up-front.

Ask For Refunds

Stiff competition has caused most retailers to adopt liberal return
policies. Many will bend their “No Refunds Without Receipt” policy on
merchandise they carry. Look around for unneeded items you have recently
purchased or received. Take it back to the retail outlet for a refund.
At a minimum, you can at least exchange the item for something you would
have had to spend money on soon, such as a piece of office equipment.

Request Access To Deposits

If you are a prompt paying customer, many utility companies will allow
you to apply utility deposits towards your next bill. That deposit then
becomes capital for a growing business. If you’re a renter, try to get a
portion of the rent deposit or the pre-paid last month’s rent payment
applied against a future payment.

Dip Into The Pension Plan

Although bedeviled with penalties and taxes, when in a crunch you can
borrow against a pension or retirement plan. When comparing several
financing options, it might be the lesser evil. The best option is to
borrow against the “cash value” of your retirement fund. You, in effect,
are borrowing your own money, so the interest rate will be low. Talk to
your employer or financial advisor to get more information.

Barter For Goods and Services

Bartering is becoming stronger and stronger each year, with $1 billion
traded annually through 300 American trade exchanges. Member ship in an
exchange typically starts around $100 and provides two major benefits.
First, they complete a form 1099-B at the end of the year to tell the
IRS how many trade dollars changed hands. (The IRS says that trade
dollars must be treated as actual sales dollars.) Second, you can
accumulate trade credit until you need to barter for goods or services.

Borrow Against Patents, Trademarks And Copyrights

It has always been challenging to establish credit using
intellectual-property assets (patents, trademarks, or copyrights). Yet
it is still feasible, however, with the right approach and right type of
intellectual-property. Before approaching a lending institution, get
your intellectual-property asset appraised by someone who specializes in

Turn A Loss Into A Gain

If you suffered a major loss this year in your business, you may be able
to turn the loss into cash flow. Find someone in a higher tax bracket
who is looking for a tax reduction, and get them to invest in your
company before the end of your accounting year. You gain their cash
infusion and they take advantage of a tax break on the business loss.
Locate suitable investors by advertising in the newspaper under the
“Money Wanted” or “Partners Wanted” sections of the classifieds. Use a
heading such as “Tax Credits & Cash-Flow.” HBM

Lecturer and author Ted Wooley also serves as president of the Horizons
Unlimited Group, a seminar/publishing company he helped found in 1987.
HUG’s popular line of resources known as the “Insider Reports” is
tailored to fill the personal and business financial information needs
of the budding entrepreneur. Visit one HUG’s main web site at or call toll-free 888-985-8585 for more information.

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