Owning a successful business can provide your family with a new revenue stream that they can depend on for years to come. Often, the process of first starting a business is the most expensive and risky part. Finding the money to start your business can be more difficult if you don’t have investors, partners, or venture capital to use to fund your business. Here are several ways that you can leverage your personal wealth to start a business without much outside help.
Secure a Line of Credit
If you have an existing business or an excellent individual credit score, you could try to secure a business line of credit for your business. While many small business loans are only available to established businesses with two or more years or credit, there are business loans that you can apply for startup businesses. Just remember that the payments you’ll need to make on the loan will increase the amount of money your new venture needs to make each month to be profitable.
Loan Money to Your Business
Instead of simply gifting money from personal account to your business account, you could loan money to your business, where the business will pay you back with interest on your loan. You will have to pay tax on any interest you receive. It is important to keep clear records of what money you invested throughout the process if you intend to earn it back.
Investing Money in the Business
Just like investing in the stock market or a startup company, you can invest your money into your own business with returns. Unlike with a business loan where you’ll earn a set amount of interest depending on the interest rate, you can potentially earn more money on your investment if the business thrives. You’ll need to carefully label any money you take out properly as an owner’s draw. Your financial advisor can recommend how to do this.
You could also slowly save money from your day job to put toward your business. You can decide to support your fledgling business as a side business while you work full-time or part-time. You can also save a portion of your salary into a savings account to open your business. Depending on what kind of business you plan to open and how much initial investment you need, you may not need to rely on third party financing to get started.
Borrowing Against Your 401(k)
Some business founders borrow money against their employer-sponsored 401(k) plans to start their companies. However, this can be an extremely risky endeavor that may not pay off. It also carries tax implications. If you plan to borrow money against your 401(k), it is important to discuss your plans with your financial advisor first.
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