Larry on Business: Other Sources to Fund Your Business

This concludes my series on financing your business

We already discussed how you can use angel investors, venture capital firms, and loans to finance your business. This short blog will outline a few other sources to fund your business.

Personal Savings provide the safest, and most difficult way to fund your business. Business News discusses pros and cons from using savings. Unfortunately, inflation prohibits the money saved from growing faster the cost of money during the time saved. WAHM.com shares some good advice suggesting several advantages of using savings including using the funds as needed rather than in a lump sum. Using savings also entice bankers to lend money. WAHM also shares four things to remember.
Family and friends provide most funding for startups. Tim Berry shares his insights on using family funds. He cautions family members from investing money they cannot afford to lose. He also cautions business owners to never spend money that was promised, but has not been delivered. Dunn and Bradstreet discusses that when taking money from family or friends you must decide whether the money is a loan (finished upon payment) or equity investment (the family member retains an ownership, the money is not returned, and the investor receives cash from the profits.)
Credit cards also provide funds to many startups. This relatively new source became fashionable in the last 50 years. Credit cards remain easy to acquire even during the latest credit crunch. Credit cards continue to award high credit limits to most people. Dunn & Bradstreet offers several cautions about using credit cards including hidden costs, high interest, and difficulty in paying off the cards.
Funding with Your 401K appears to be gaining popularity in spite of the high risks. The Wall Street Journal recently cited several concerns about using your 401K including losing your nest egg for retirement and having to pay the high penalties associated to early withdrawal. I especially appreciated Inc. magazine’s article in 2010 outlining both the process and risks of using your 401K.
Financing with Home Equity, long a stalwart of business funding, became more precarious as home prices plummeted during the last few years. The SBA provides an excellent article. Too many people owe more on their home than the value of the home. Therefor, you could not get any home equity for your business.