Financing is one of the most formidable challenges for small business owners. While coming up with the next great idea seems like a trial, it is nothing compared to the task of getting another person (one with money, power, or both) to believe in your idea. Where is a small business owner to start? In many cases, self-financing is a solution that small businesses overlook because it doesn’t seem like a possibility. Here is a step-by-step plan to determining if this option is the right one for you.
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Step One: Do an inventory.
If you are like many Americans, you have assets that you real estate, there are retirement accounts and investments. Even assets such as your primary vehicle and recreational vehicles can be used to fund your business. Look around you home and your everyday life; there may be several items that can be quickly liquidated to finance your small business dream or at least used as collateral for other types of funding.
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Step Two: Consider equity.
This mainly applies to homeowners, but it also can apply to other people. Even if you don’t outright own something, such as your home or a vehicle, you may own enough equity in it that this equity can be either cashed out or used as collateral. Although home prices have been stagnant and even dropping, you may be pleasantly surprised by the amount of equity you have. Banks look favorably on home equity—they know that people will do anything to avoid losing their home—and may be willing to give you a line of credit based on it.
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Step Three: Raise Your Hand If You’re Insured.
Certain types of life insurance plan actually build a cash value. Even if you are uncomfortable cashing these out, they are yet another asset that can be used as collateral. Best of all, you can borrow against these loans and in many cases, never have to pay them back. The amount is simply subtracted from the value you receive either at the end of the loan’s term or upon your death.
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Step Four: Leverage Your Retirement.
If you are still working for someone else, there is a good chance that they are providing at least a modest retirement for you. If this is in the form of a 401(k), you may be able to borrow against your account balance. You will have to pay it back, but these loans are generally easier to get than traditional small business loans. Because different plans have different rules, you should consult with your plan administrator to find out whether this is a possibility for you.
You may not be able to come up with enough money to completely finance your small business dreams, but any amount of money is better than nothing. Putting your own assets on the block shows banks that you believe in your dreams enough to put your money where your mouth is. Banks and investors will see that you mean business and be more likely to give you the support that you deserve.
