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While borrowing money from angel investors or venture capitalists for your startup may seem like the right thing to do, taking outside help may not always be the best decision for your startup. Sure, you’ll benefit from expert advice and continued mentoring, but you won’t be able to exercise 100% control over your business if someone else has invested a significant amount in your startup.
If you are certain that your business plan is rock-solid, don’t hesitate to self-fund your business. You might not be able to generate all the funds by yourself, which is fine. As long as you’re borrowing as less money as possible, you’ll be able to have your cake and eat it too!
If you’re ready to self-fund your business, read on for 4 tips that will help you succeed without having to turn to investors.
Tap Your Savings
Tapping your savings is the easiest way to finance your startup. Use whatever cash you have in your savings and checking accounts to get your startup functioning.
If you are employed and have a 401(k) retirement plan active, you can borrow up to 50% of the account balance against the plan. You’ll be charged an interest rate and will have to follow a repayment schedule, but if you lose your job, you’ll have to repay the loan within 60 days.
In addition to this, consider withdrawing funds from your IRA (individual retirement account). Keep in mind that you’ll have to replace the amount you withdraw within 60 days or you’ll have to pay a premature withdrawal fee. Also, the money you don’t replace becomes taxable!
Pros: Using your personal savings to invest in your startup means not having to pay high-interest rates on borrowed money.
Cons: Using all your savings to fund your startup is risky- should your business plan fail, you’ll have nothing left. Moreover, your savings may not be enough to kick start your business, so if you’re going to borrow funds from elsewhere, you might be better off without using your personal savings.
Your personal assets- house, other real estate investments, car, stocks, bonds, and more- can be sold to generate funds for your business. If you have invested in gold or silver previously, you can also sell these precious metals for cash. Just be sure to approach reputed gold dealers!
Pros: Selling personal assets is a great way to raise funds for your startup as you don’t have to pay interest on borrowed money. Investing your own money into your business also means that you’re confident about your plans- a plus point if you’ll need investors!
Cons: Selling all your assets and investing the money in your startup is as risky as using up all your savings. Additionally, you might be liable to pay a capital gains tax on selling real estate and stocks!
Generate Income from Other Sources
If you have a job, don’t leave it right away to focus on your startup; this will ensure you have a steady flow of income to take care of various expenses. If you’ve already quit your job to get your startup going, consider taking up a part-time job.
Another great option to generate additional income is to rent your house. Furthermore, cutting down on personal expenses and avoiding outsourcing jobs that you can do yourself will also be of great help.
Pros: Your steady income can help fuel your startup and the budgeting skills you learn now will come in handy when your business is up and running.
Cons: Juggling a job and your business can stress you out and you might not be able to devote enough time to your startup.
Get a Home Equity Loan
If you own a home, you might be eligible for a home equity loan on the amount of mortgage you’ve already paid off. Upfront costs and interest rates for home equity loans are generally lower than other loans, and depending on the value of your house, you could even get a home equity line of credit.
Pros: A home equity loan or line of credit is available through several financial institutions. Also, the interest you pay on the loan is tax-deductible.
Cons: A home equity loan can be like an extra mortgage on your property. Further, your home is the collateral and if you fail to make payments, you might end up losing it. Note that if the value of your property drops, you will end up owing more on your property than its actual worth.
Self-funding your startup may seem difficult, but it doesn’t have to be that way. With the information provided here, you now know that there are lots of ways to fund your startup without having to turn to investors or taking small business loans.
Weigh your options wisely before taking the plunge, and you won’t go wrong!