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Home » Finance » Home Finance » Self-Financing

Self-Financing

Most entrepreneurs depend on themselves for small business financing. It's quick, doesn't require a lot of paperwork, makes you frugal, and comes at no costly interests. That's why it's important to know what you have before you seek outside capital. Besides, bankers, venture capitalists, and the government will want to know how much you have before they lend you their resources.

Begin with Yourself

Self-financing is the fastest and best way to fund your business. Wall Street gems started out bootstrapping, such as Google, Starbucks, and Apple. Others that obtained venture capital before bringing in revenue shattered during the dot-com boom (most notably, Pets.com). When you use your money, you'll be a lot more careful. You usually have more than you think. Most people only look at their cash savings, but remember that you can liquidate your assets (i.e. turn stuff into cash).

Your Home Equity

A home is one great way to liquidate your assets. You can use it as collateral to fund your business. If you own a home, and have been building equity into it by paying house mortgages, you have a variety of options. You can acquire a mortgage, refinance your past mortgages, or obtain a home equity line. Tapping your home equity is low risk as compared to other small business financing options, and it's a good source to access a chunk of money. Some lenders have begun offering up to 100% of your home's value, though we highly discourage taking out this much. If you have one bad month, you will leave yourself homeless. Don't forget your other assets. Many small business entrepreneurs look to sell their stocks, home equipment, automobiles, etc. eBay's a great tool to turn your assets into cash.

Credit Cards

It's tempting to use credit cards for small business financing. Merchants blast you with promotions of the large amounts you can use. We highly discourage it. The rates will kill you in the long run. You'll have to cover large interest expenses monthly, which should've been used to reinvest in the company. There are much better options out there, such as converting your assets into cash.

Know Your Personal Balance Sheet

You'll understand what's accessible if you know your personal balance sheet. Your net worth will come from subtracting liabilities from assets. Assets will include available cash, savings, real estate properties, automobiles, investments, among others. Liabilities, meanwhile, include monthly bills, credit card expenses, home mortgages, any loans and debts, among others. It's important to have a good indicator of the available funds to build your business. You'll find that funding the company yourself will be a great small business financing option.

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