Sheila Lovell had already founded, grown, and sold one successful home-based business, a landscaping company in Massachusetts, when in late 1996 she purchased another. She set up the new business -- a tiny, barely afloat manufacturer of fishing charts named Captain Segull's Nautical Charts -- in her new home, in Portsmouth, R.I. "I bought the company for $40,000, even though it only had about $15,000 in annual sales, because I believed that it really had tremendous growth possibilities," she says.

To achieve that growth, Lovell needed capital. She wanted to research and create new charts -- to add to the line of 15 that the company already printed and wholesaled -- and increase marketing efforts to the world of marinas, bait-and-tackle shops, and other fishing-supply retailers. But despite her history of entrepreneurial achievement and successful banking relationships outside the state (where her last business credit line was an unsecured loan of $100,000), her loan application to one of the biggest lenders in town was met by one requirement after another. "I got a sinking feeling in my stomach and a wicked headache," she recalls. "I could see that I had some big strikes against me, including the fact that I'd bought a very small company with unproven potential, and that I planned to operate it out of my basement, which might strike some bankers as a sign of not being serious."

Although Lovell knew she needed a substantial credit line, she had no intention of relocating her headquarters just to raise cash. "Operating out of the home has always been fabulous for me. It gives a business owner a financial advantage because it really keeps your costs down, and that allows you to funnel most of your cash flow into growth activities that matter," she says.

Lovell contacted her local chamber of commerce, which put her in touch with John W. Nelson III, founder of the financial-consulting firm Capital Connection in Newport, R.I. A former banker and a home-based professional himself, Nelson is a specialist in helping small-company owners access capital by using a rigorous approach that emphasizes credibility and creditworthiness.

Trouble is, Lovell wasn't gunning for a small loan; her business plan called for a credit infusion of about $70,000 to help her produce 10 new charts within a year, which she viewed as the easiest way to crank up sales quickly. With the higher revenue base she expected to earn from those new charts, she planned to channel excess funds into the production of even more charts.

From Nelson's perspective, there are several reasons why home-based business owners can have a tough time attracting financing -- maybe even a tougher time than other small-business owners. "Some bankers, especially older ones, do tend to have preconceptions, which is why one needs to work very hard on a business plan that will document a company's strengths and potential," he says.

Also, bankers look for collateral. "If your company itself doesn't have anything worth collateralizing, an owner will have to put up his or her house," he notes. "For those people who are renters and lack other kinds of collateral, it may be simply impossible to get a bank loan at an early stage."

Nelson urges home-based owners to address the credibility problem by putting together a financing application that overproves their case. It might include copies of signed contracts or letters of intent from customers, which, he says, "won't count as collateral but will help a banker build up a warm-and-fuzzy feeling."

In addition to the financial statements, projections, and tax records that would typically accompany any application, Nelson recommends including such documents as a signed lease for the home-office space (ideally one that spells out some type of payment from the company to the home owner); a floor plan that clearly illustrates the business's separate work space; and relevant paperwork, such as municipal and state guidelines, required permits, insurance certificates, and documents of incorporation.

It's also important that business owners be open about the nature of their operations and not project any embarrassment or lack of confidence about being based at home, according to William A. Tanenbaum, chairman of the Computer, Internet, and E-commerce Group at law firm Kaye, Scholer, Fierman, Hays & Handler LLP in New York City. "That should be a completely neutral factor provided the entrepreneur handles it correctly," he emphasizes. "Don't be apologetic. Don't be defensive. These days, a person's office is wherever his or her modem is, and there are very few limits to what can be done at home. But the essential message that you must convey to investors or bankers is that you are every bit as serious, sophisticated, and growth minded as you would be in any other location."

With Nelson's help, Sheila Lovell accomplished her fund-raising objective, securing $70,000 from a local bank in an SBA-backed credit arrangement in 1997. "Last year the company sales were $78,000, with fixed costs of $48,000," she says. "This year in the first eight months we've sold $112,000 worth of charts, and our fixed annual costs are still $48,000 because we're still operating out of the basement!"