Many entrepreneurs prefer to use their personal funds instead of obtaining traditional loans. Traditional loans can be difficult to obtain, include a tiresome process, and come with an interest rate. If you have sufficient funds, choosing to use personal funds in your savings, retirement accounts, or equity in properties is a better option. Over 50% of small business start-ups are started with personal funds. Here are few options on how you can leverage your own money and grow your business.
If you have enough savings to start and run your business, then this is the easiest source to draw from. It’s important to analyze how much money is required to start and run the business smoothly for at least the first few months. Starting and running a business can often be costlier than you estimate.
However, entrepreneurs should be cautious not to use their entire savings to fund their small businesses. About half of all new businesses fail within the first five years. If the business fails, the owner loses all their hard earned savings, funds, and personal assets.
Low Interest Credit Cards
A low interest credit card allows you to swiftly finance your business without applying for a loan. Compared to conventional traditional bank loans, a consumer credit card is a lot easier to obtain and provides flexible capital.
Also, credit cards with long introductory offers such as 0% APR for purchases and balance transfers can benefit small businesses. Plus, these zero percent credit cards also offer cash back or rewards points on purchases with higher-spending limits.
Personal loans are often used to fund small businesses. Personal loans are quick to obtain if you have got a great credit. Though personal loans are offered in smaller amounts, they don’t require collateral and the lender reviews the individual and not the business.
If the company goes under, personal loans still need to be paid by the owner. With business loans, the assets are liquidated to pay creditors and owners personal assets are not at risk.
Use Rollover for Business Startups & Finance your business
Another great option is to tap into the benefits of ROBS. Rollover as Business Start-ups is an arrangement that allows business owners to use funds from their 401(K) or IRA and invest in their new business without tax and penalties.
Funds from 401(K) or other retirement accounts cannot be directly accessed as there are few restrictions. However, if the 401(K) account is rolled over with ROBS plan, there will be no such constraints and your business will get tax-free funding.
ROBS is legally bit complicated, but on the positive side, it is neither a loan nor debt and that means you will stay clear of getting bothered about credit scores and big monthly payments.
Using Home Equity as a Financing Source
Entrepreneurs, who are turned down by money lenders, can also turn to home equity as a financing source. If the borrower has a good income, credit score, and equity, getting home finance loan is simple.
Also known as HELOC, home equity works similar to a credit card.
Business owners who have good equity on their home can easily take a loan or second mortgage. Since large collateral is being placed, to be on the safer side, you should be regular on your payments.
The ultimate purpose of doing business is to enhance personal wealth. Since personal assets are being used as collaterals, reasonable care should be taken to avoid unpleasant circumstances.