Funding Your Business Part 1- Self Funding
In this series of articles, we will examine the financial options and programs available to business owners to fund their business.
By Debbie Gregory.
Whether you’re looking for start-up funds, capital to expand, or money to hold in reserve to get you through tough times, how you fund your business is one of the most important decisions you will make.
The term self-funding includes using your own money to invest directly in the company and using your personal assets as collateral for outside funding. If you are in a financial position to fund your business yourself, this option allows you to be independent and retain complete control of your business.
These monies could come from sources such as your savings, equity in your home, credit cards or even your retirement account.
Saving up the money to fund your business ahead of time saves you money since you will not be paying any interest, although it does involve risking your personal savings.
If you have equity in your home, a home equity loan or home equity line of credit (HELOC) is another option. Home equity loans provide a one lump-sum payment, while a HELOC works similarly to a credit card, where you only pay interest on the outstanding balance. But keep in mind that you are at risk by using the family home as collateral, something you wouldn’t want to lose.
One of the most expensive ways to self-finance your business is by using credit cards. Many successful business owners have used this method and made it work, but again, this is very risky, and depending on the interest rate, could be very expensive.
For a short burst of cash, you can withdraw money from your IRA interest and tax free, as long as you replace it within 60 days. However, make sure you pay back the money on time. If you’re just one day late in replacing the money for any reason, you’ll have to pay a 10 percent penalty and taxes on any of the money you haven’t paid back.
You may also be able to get funds from family members and friends. But please consider, each one of these methods does have a potential down-side should your business be slow to show a profit.
Veteran and Military Business Owners Association, VAMBOA,
