When launching a business, the essential components of your success are the quality of your ideas and your willingness to put in the work required to see those ideas come to life. In the milk of capitalist meritocracy, the cream rises to the top. With gumption, know-how, and a little steely-eyed grit, there’s nothing stopping you from turning all that money currently languishing in your trust fund into a thriving business enterprise. Go ahead, make your mark on an opportunity-laden world!
But not all of us are blessed with a fat trust fund. Let us explore the ways you can get your mitts on some startup capital for your new business venture.
- Use Personal Savings
Self-funding may not be realistic for many entrepreneurs. Yet the fact remains that 78% of startup business owners didn’t seek startup financing outside of personal savings or job income in their first year.
You might not be flush with cash, but you can always try doing things to change that. You could sell your car and use the bus to get around. Sell your house and rent an apartment above a restaurant. Or keep the house and get a home equity loan or line of credit. Just be sure to make the payments, or else you will be wishing you got that apartment when you had the chance.
- Tap Into Retirement Account
Another option is to borrow money from your assets. You can borrow money from your 401(k) or your IRA savings account. These are obviously not risk-free options, and should not be your first resort. But if you were looking for a life of minimized risk, you’d have chosen a more staid line of work. So be careful, but know that these options are available to you.
In fact, your business might be seen as a more worthwhile investment if investors see that you have a personal stake in its success.
- Ask Friends and Family
Another solution is to hit up your friends and family for money. However, it is one thing to imperil your own finances with the inherently risky activity of starting a business. It’s quite another to put your close personal relationships in jeopardy. Consider the risk to which you’re subjecting your loved ones. Also, consider the fact that using money from friends or family might drive you to stick with a losing proposition longer than is rational.
If you do decide to seek business funding from friends and family, do yourself a favor: go through all the proper legal channels and have the paperwork professionally prepared. You should also make sure to request a loan, not an equity investment. Ask for the latter, and your friends and family will have the legal right to be involved in major decisions involving your business.
- Get a Loan
When you’re launching a startup, business loans can be quite hard to obtain, mostly due to your lack of existing business revenue. It’s a classic “chicken and egg” problem. Situations like these are where personal loans can become a solution.
While getting a business loan is often dependent on characteristics like the health and creditworthiness of your business, getting a personal loan is entirely dependent on your personal characteristics. Expect lenders to closely scrutinize your credit score, source of income, debt-to-income ratio, and proposed use of the loan.
Personal loans generally top out at $35,000, although a few lenders cap it at $50,000 or higher. This amount is a small fraction of the amount you can borrow with a business loan, which can be $1 million or more. Simply put, startups are inherently risky ventures, so the number of capital lenders willing to lend you is going to be strictly limited.