It's rare that an entrepreneur with little more than a good idea and a willingness to work can walk out of a traditional bank with an unsecured business loan. If yours is a start-up business, without a track record of revenue and a solid customer base, you'll need to prove — usually through your business plan — that you're worth taking a risk on. And you'll often need to put up some kind of security or collateral, which the bank can repossess if you stop making payments on the loan.

Government Programs

The Small Business Administration (SBA) might be one way to access start-up funding. In most cases, the SBA doesn't lend money directly — rather, it works with banks and Small Business Investment Companies (SBICs) to guarantee loans for small businesses that otherwise wouldn't be able to qualify for a traditional commercial bank loan. Most home-based business start-ups would find the Microloan program one of the most useful SBA funding options.

These Microloans, which are available in amounts up to $35,000, are provided through intermediary lenders, each of which has its own loan requirements (typically, these will be similar to a bank's requirements). It will likely be easier to obtain a loan to purchase an asset (such as a vehicle) that can stand as collateral, and your personal guarantee is still required (if the business fails, you still owe the money). The loan cannot be used for existing debts or for real estate: It's designed for inventory, supplies, furniture, fixtures, machinery, or equipment.

Canada has a similar federal program — the Canada Small Business Financing Act — which provides loans for small businesses through banks, credit unions, and many other lending institutions to a maximum of $250,000 to help finance the purchase or improvement of property or equipment.

In both the United States and Canada, various levels of government offer many other small business financing programs. Check phone directories and the Internet for state and provincial listings and for regional or municipal programs. Useful search words include business or economic development, opportunity funds, economic diversification, and small business financing.

Local Financial Institutions

Even if you don't qualify for a business loan, you can still apply for personal loans, home equity loans, or vehicle and equipment loans — assuming that your personal credit is good. For example, if you're planning to open a catering business, and you need a vehicle, your bank might be willing to give you an auto loan for the van that you need: The van itself becomes the collateral that reassures the bank that it won't lose its money. Financing the van then allows you to spend the capital that you do have on other items.

Venture Capitalists and Angels

Venture capitalists won't usually be investing in the average home-based business. While they're willing to take risks on new businesses, they're typically looking for a high rate of return that would come from relatively fast and significant revenue growth. If you fit that bill, however, you might be able to make a good case for yourself.

Even if venture capital firms aren't the answer, you may be able to find a patron who is willing to back you, commonly referred to as an “angel” investor. For example, have you impressed a successful local businessperson who has money looking for a good use? Get your business plan on paper, make an appointment, and go have a chat. The worst that can happen is that you'll get turned down. But you might also get an introduction to someone else who can help, an offer of help in some form other than cash (mentoring can be a powerful tool), or a reference to help you establish credit in the business community.