Individuals seeking to start a business normally find that being able to raise money to help with start-up costs is their biggest barrier-to-entry. However, there are a number of viable ways to raise or borrow money in order to fund a new business opportunity. Consider a business loan, using personal savings, a home equity loan, a friends and family loan, credit cards or borrowing against a 401K.
A Home Equity Loan to Fund a New Business Opportunity
A new business opportunity could be funded by a home equity loan, provided sufficient equity is available. A HELOC loan provides those who start a business with more flexibility than a traditional business loan as it is possible to borrow money when it is most needed. As it is provided on an interest-only basis, this helps keep repayments low during that difficult first year. A home equity loan is secured on the family home, which is a consideration for those who may be considering this option.
Use Personal Savings to Start a Business
Personal savings are an ideal way to start a business as there is no need to raise money through a business loan, family loan or home equity loan. The interest on savings is currently very low and the cost of borrowing money remains stubbornly high. The risk is that these savings will be lost should the business fail.
Raise Money with a Business Loan
Whilst banks are more reluctant to provide business loans than they were, it is still possible to raise money to start a business with their help. A new business opportunity is one thing, but a solid business plan will need to be constructed if it is to be accepted by underwriters. Banks often seek collateral, such as property, before they will agree to a larger business loan.
Borrow Money Against a 401K
Those seeking to start a new business can raise money by borrowing against their 401K plan. The principle advantage is that it is an inexpensive way to borrow money. Should the money not be returned within specified five year period, it can mean that the borrower owes taxation to the IRS.
Start a Business by Borrowing Money from Family and Friends
Friends and family are far more likely to be the primary supporters of a new business opportunity. It makes sense to borrow money from them because they are statistically more likely to be agreeable and will offer more favourable terms than a bank. The major negative of a family loan is that business failure rates are high. Defaulting could place a strain on an important friendship or family relationship.
Start a Business with the Help of Credit Cards
Whilst credit card debt is a more expensive way to borrow money, the cost can be reduced and any debt is unsecured. It is possible to fund a new business opportunity with the help of a charge card. Buy essential items on this and then apply for a new credit card so that an interest-free balance transfer can be performed. Either clear the money owed at the end of the promotional period or perform a new transfer. Should the business fail, consider a debt solution such as debt settlement.
There are a number of excellent ways to raise money towards business start-up costs. Whilst a new business opportunity is a potential source of self employment and financial rewards, business failure rates are rather high. Opting to borrow money to start a business constitutes a speculative investment and this needs to be recognised and accepted from the outset.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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