Personal financing is also sometimes referred to as “Bootstrapping”. Investing your personal savings into your business will give you the freedom to operate it as you choose. It will also make your business more attractive to potential investors.
Contributions from Family and Friends
Sometimes referred to as “love money,” investments from family and friends have lots of advantages: they won’t impact your credit rating, there are no service fees, and usually come with no or very low interest rates. But be careful—they can be a potential source of conflict in your relationships.
Unsecured Lines of Credit
An unsecured line of credit will give you access to cash whenever you need it. It can help with resolving short-term cash flow problems, business expansion, or other expenses. You can usually negotiate the repayment terms and interest rates. A good credit history and a good relationship with your bank will play an important role in your negotiation.
Use credit cards with caution—they usually have very high interest rates. Use them only for short-term cash flow, not long-term funding. Responsible use of credit cards can help you build a good credit history and provide short-term access to cash when you need it.
Crowdfunding Sites and Peer-to-Peer Lending
Also known as crowd-sourcing, crowdfunding can help you access loans via small amounts donated by a large number of people—anyone can be a potential lender. Before starting a crowd-funding campaign, be sure to read the fine print. Pay attention to how much the crowd-funding platform retains as fees.
Asking for a deposit from your clients before beginning work can provide you with the capital to secure raw materials for a project before getting started. Some companies pair advance payment with crowdfunding to secure financing for their venture before beginning production.
Factoring means selling your accounts receivables (the money your customers owe you) to lenders. They buy your customers’ outstanding invoices as collateral for funding. Factoring is usually only an option for established businesses.
You have two options for factoring: borrowing against your accounts receivables, but keep responsibility for collecting, or sell responsibility for your accounts receivables.
Contests and Awards
Entrepreneurial or small business competitions are organized by nonprofit organizations, business corporations, or government bodies. They are usually business plan competitions but can also be specific to other aspects of your business, such as environmental stewardship or innovation.
Home Equity Line of Credit
A home equity line of credit (often called a HELOC) lets you borrow on the equity of your home (the current market value of your home, minus the outstanding mortgage balance), using your home as collateral.
There are two types of HELOCs: fixed rate loans and variable rate lines of credit.