Guide to Self-Financing Your Business

But be careful not to overextend yourself when dipping into your own finances

Many entrepreneurs have launched or grown their business with their own cash or money from friends and family. Some chose this route because the banks turned them down but others didn't want to give up control to a banker or venture capitalist. If you're set on going it alone and self-financing your business, pay close attention to these rules:

   1. Carefully calculate how much financing you'll need to successfully launch (or maintain) your business, making sure you do not underestimate the amount.
   2. Do not invest more than you can comfortably afford to lose should the business fail.
   3. Read the fine print in any deal, whether it's your credit-card agreement if you're financing with a credit card or a home equity loan if you're going that route.

Action Steps:

The best contacts and resources to help you get it done

Secure a loan from friends or family

Getting a loan from friends or family is not as easy as picking up the phone and asking. Will Uncle Albert want a share of the business, or substantial collateral if he loans you money? Do you feel comfortable saying no if he asks? Do you plan to pay back the money in a defined period of time? In seeking or securing a loan from family or friends, set a limit on the time you will take to repay them, and be clear about what they are or are not getting in terms of equity and collateral.


Consider a home-equity loan or second mortgage

You can self-finance by taking out a home-equity loan or second mortgage, but don't consider this strategy unless you have substantially more than 20 percent equity in your home. If you have any less, you may end up placing all your equity into your business, with little or none in your home. If the business fails, you could lose the house as well as the company.

   
Use your credit card

You can finance your business with money from your credit cards but be very careful. Credit card rates are higher than rates on bank loans or home equity loans. Read your credit-card terms and conditions carefully, and don't use cards to finance your business unless you are absolutely certain you can pay back the money quickly – or handle the interest rate.

   
Finance with future credit-card sales

Using this method, you sell, at a discount, part of what you believe your business will generate in credit-card income for a specified period of time in the future. Since this is not a loan, no collateral is required.

 

Apply for a grant or government support

You can supplement your self-financing with a grant or government support. The advantage is you don't lose control or your business by offering up a share of it to the grantor. State economic development agencies offer grants and other types of financial help to small businesses.

 

Tips & Tactics

    * Set a limit to the amount of personal funds you are willing to commit and be absolutely ready to walk away if the business does not succeed. Do not keep pumping

"just a little bit more" thinking it will click unless you have a virtual guarantee you're going to succeed., for example, a commitment for future purchases from a client.
    * Don't self-finance until you have enough money to start the business.
    * If using credit cards, find ones with low interest rates or initial no-interest periods.
    * Keep your credit record in good standing – don't rack up late fees on the card you use to finance your business.


Move On With Your Business.......