How to Fund a Business

Step-by-Step Guide

1. 1

   Step 1: Think about the benefits and drawbacks of funding your business yourself.

   These days, over 90 percent of start-ups are self-funded.
   
   This method has several advantages, including maintaining control of the business and avoiding giving up business equity.
   
   However, with this method you are putting your own assets at risk.
   
   It may also take much longer to build up enough savings to make this sort of financing a possibility.Take these risks into consideration when deciding to fund your business personally.
   
   This method is also referred to as "boot-strapping." Having your own money in your business may give confidence to future investors.
2. 2

   Step 2: Consider your own money as a source for business financing.

   This is the simplest way to fund your business personally.
   
   Take money out of a savings account or another account that you have built up over time.
   
   You should only select this option if you have funds that exceed your retirement savings and emergency fund.
   
   You should not use any savings that you have set aside specifically to secure your future. , Your home is one of your most valuable assets, so taking out a loan against its value will likely yield you a good amount of money (provided you have substantial equity in it).
   
   Check with local banks to see your options.
   
   Some may let you use a second mortgage for business purposes while others may not.
   
   Be sure that you also have adequate credit to apply for one of these loans.Be warned that because this loan is taken out against your home, it may result in foreclosure if you fail to repay the loan.
   
   Never take out a second mortgage for personal use from the bank and then use it for your business.
   
   This is a breach of the loan agreement and constitutes fraud., If you have enough equity in your home, you should be able to borrow from it using a home equity line of credit (HELOC).
   
   Discuss your options with your bank's financial adviser and determine if this is your best option.
   
   With an equity line of credit, you benefit from the flexibility of borrowing from it whenever needed.
   
   This is different from a second mortgage, which requires regular payments and is based on a set initial amount.
   
   For more on HELOCs, see how to calculate an equity line payment. , A credit card will allow you to fund your business expenses, such as administrative purchases and payroll.
   
   Note, however, that even though a credit card is convenient, it also incurs high interest rates.
   
   Familiarize yourself with the terms of the card, such as annual fees, finance charges and interest rates.
   
   Opt for a credit card that offers bonus rewards that you can use for your business, such as air miles, cash back and bonus points. , Talk to people close to you and see if they are willing to invest in your business idea or give you a loan.
   
   Pitch your business to them as you would to any other investor or financial institution.
   
   Show them that you are taking the business and their loan repayment seriously.
   
   This may convince them to help you out.
   
   It's best to keep the amount borrowed around the minimum of what you need and make the repayment schedule on the loan shorter than one year.
   
   This way, you can quickly move on to other sources of financing that will not risk your close personal relationships.Getting money from friends and family may show future professional investors that others believe in your idea.
   
   This can give them confidence in your business.There are many risks involved with this type of funding.
   
   For example, in the event that your business fails, you will be stuck with a debt that you may not be able to pay back and will therefore not be able to pay back your friend or family member.
   
   This could break any close ties you have.
   
   If you do decide to go ahead and borrow from a family member or friend, create a contract that is formal and just as legitimate as borrowing from a bank.
   
   Hire a lawyer to draft and review the contract to avoid future legal difficulties.
3. 3

   Step 3: Take out a second mortgage on your home.

4. 4

   Step 4: Finance your business with an equity line of credit.

5. 5

   Step 5: Apply for a credit card to fund your business.

6. 6

   Step 6: Borrow from friends and family.

Detailed Guide

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