Self-Financing–Just Pay for It Yourself

by Ed Martin on October 9, 2009

You’ve figured out what kind of business you want to start and you’ve come up with plans. Now you’ve got to figure how to fund it. How the heck do you do that and where do you start.

Look Inward
Self-financing, or bootstrap financing as the entrepreneur-heads call it, is the number one most popular, easiest and, well, scariest method for raising money. Put simply, it means you use your own money. It doesn’t take a lot of paperwork and you don’t have to convince anybody but yourself and maybe your significant other that your biz will work to get this funding. It’s already yours! Of course if your biz fails the losses all are yours, too.

One other benefit of self-funding is that if and when you do ask others to invest in or fund your business you can show that you have enough faith in your idea to risk your own money. You can’t very well convince others to risk their money if you haven’t done the same.

Take Stock
Start out by figuring out what you actually have for assets. Make a list of everything you’ve got. Most people have more than they think they do. Here are some ideas to get you going.

  • The first place to look is your personal savings. You can use them for start-up costs and to tide you over until your business generates enough income to keep you going. It is always a good idea keep a reserve that you can tap for emergencies: an unexpected opportunity comes up or a customer stiffs you.
  • If you have a day job, you’ve got a source of funding right there. Or you can take on a moonlighting job. Do this until your new biz can support you on its own.
  • Cut costs, pinch pennies, do whatever you can to cut back on your expenses now and use that money for your business.
  • Sell some assets. That’s what e-bay is for. Seriously, you must have some stuff you can get rid of, those old savings bonds stuck in a drawer, your ex’s jewelry, something.
  • Home equity is an option is you still have any. We all know the risks of this with falling house prices and overextending to buy, and the chance you could lose your home. Your house may not be the easy lending bank that it used to be, but it is still an option for many
  • IRA withdrawals -you can withdraw self-directed IRA money for 60 days before you get hit with taxes and penalties. This could work for short-term funding. If you have several IRA accounts you could even juggle withdrawals and paybacks around to extend the term. Remember this is your retirement money and many experts will tell you never to mess with it, but if you are starting a business that will support your retirement then it is a trade off.
  • If you are employed you can borrow from employer 401k plan, if there is any money left in it. You will get the same warnings about messing with your retirement money as with the IRA. One thing to remember is that if you leave your job you have to pay all the money pack to your 401k then.
  • You can borrow against a whole life insurance policy if you have one.
  • One last and popular method that people use is credit cards. They are easy to use and readily available, but come at a high cost. The best way to use them is not to fund your entire startup with credit cards but instead to spread out expenses so you don’t build up a balance with high inters rates.

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