Self-funding a business, or “bootstrapping,” is a common way to cover some if not all of your business’s startup costs. The resources you can rely on include:
- Personal savings
- Selling some of a stock portfolio
- Selling a vehicle, jewelry, or other valuable belongings
- Drawing on a retirement account
- Taking out a home equity loan
Funding a business with your own money gives you the advantage of maintaining total control of the company, and can avoid regular debt expenses in the future. Contributing personal resources is also a strong signal of support for your own business idea, since you’re willing to commit your own money to the endeavor.
The downside of this approach is that it comes with considerable risk to your personal finances, and can create short-term challenges even if your business is successful down the road. For example, borrowing too much from your savings account can jeopardize your ability to respond to a personal financial emergency. Other disadvantages include early withdrawal fees when tapping into a retirement account or a reduced profit on a home sale when getting funds through a home equity loan.
Funding startup costs with personal credit cards is another option. This is usually not as feasible as the sources already listed, since it will saddle you with high-interest debt while you work to build up the business. However, a credit card can still assist you in meeting ongoing business expenses, and you may be able to receive additional benefits through a rewards program.
Be judicious about where you will spend your personal assets. Ideally, you should contribute these funds toward investments that will have a multiplier effect, such as a marketing push to attract new clients or the development of new products and services. This allows you to put your own money toward causes that are most likely to generate revenue while relying on other funding sources for more routine costs like commercial leases.
Entrepreneurs can choose to contribute money toward their business endeavor as a loan, documenting the necessary terms and paying themselves back from company revenues. Alternatively, the money might be considered an investment that allows them to draw on the business’s equity later on. Consult with tax and accounting professionals to decide which approach will work best for you.