Personal funding can be a viable option for your small business needs, but doing it successfully requires you to thoroughly calculate all of your costs, so that you don’t run out of money before your business can support itself. Your goal should be to finance your business so it can stand on its own, without co-mingling personal assets and credit. This will be important as you provide financial reporting to tax agencies, potential lenders, and other entities. There are a few different options when it comes to personal funding:
- Personal Credit Cards: if you can’t secure a business credit card, a personal credit card with a reasonably high limit can help you get those first few purchases and your business under way. Keep a close eye on your credit utilization and pay your bills on time, because making business expenses on personal credit cards can ruin your personal credit history.
- Savings/Home Equity: Dipping into your savings is an even riskier business, but if you have a good amount set aside this could be the cheapest option for you. Borrowing against your home can be a cheap option as well.
- 401K/ IRA Savings: If you plan to incorporate your business, you can use your retirement plan to invest in the company. Keep in mind that it may not be wise to bet your whole retirement savings on your brand new business.
If you plan to ask your friends and family for funds, take time to think through what you’re asking for, and how you formalize this agreement.