Should You Finance Your New Business Out Of Pocket?

Many small business owners begin by gaining financing through bank lending, private investors or other means of lending. For a small few however, financing their business means out of pocket expenses. If you choose to fund your business out of pocket, you have a few choices. The benefits of this type of business capital start up are many, not the least of which is knowing that your business is yours and it is paid for. This means that any profit you receive will actually be profit.

If you have a healthy savings account, you can use part of this to fund your business. While you are going to be losing interest when you take money out of your savings account, you are actually saving money because the interest that you will be charged for a loan is far greater than what you will lose by taking away from your savings. You could potentially roll money over from your IRA if you have one, as well. Keep in mind however that if you take away from a savings or retirement account, you need to be sure that you will be able to put this money back. You don’t want your business to fail and be left with nothing when it comes time for you to retire.

Some new business owners choose personal debt as opposed to business loans. Personal loans can be a bit easier to obtain, particularly if you have a good credit score. You may also want to think about using credit cards to fund your business start up. Remember that you will be charged interest on credit cards and personal loans however, so be sure that you are not getting in over your head with regards to making the payments on these loans.

Friends and family could prove very beneficial when it comes to funding your business. If you do not want to go the traditional loan route or you cannot obtain a personal loan, you can ask friends and family to help you out. Consider a partnership with a friend or family member and pool your funds together to open your new business. You could also take a loan from friends and family but remember to make a plan to pay back the loan so that you do not put stress on your personal relationship.
Self funding your business means that you will be in complete ownership and complete control over your finances. If this is an option, it is a great way to get your business started out on the right foot.