Finding startup money for a new small business: Part 2
Many people dream of starting a small business. Few people actually do it. The largest obstacle for many is raising enough money to get off the ground. But somebody out there is making it happen; new businesses are popping up every day.
In the last section we looked at how salary, personal savings and credit cards can help finance a small business. Here is a look at a few more common sources of start-up money. Hopefully these ideas can help you get the ball rolling in starting your own small business:
Home equity line of credit
If you have a mortgage, or own your house outright, you may be able to borrow against the house for start-up money. Equity is the difference between what your home is worth and how much you owe on the mortgage. Let’s say you bought your house for $150,000 and two years later you paid the mortgage down to $100,000. Also, the value of your house has risen to $200,000. The difference between the current mortgage and current value would be $100,000. A bank will take a second mortgage on the house and allow you to borrow against the $100,000 equity that you have accrued.
Advantages and disadvantages
If you use this route you will still have to make payments on the credit line and the original mortgage. Also, the interest rate could be variable, allowing the bank to raise them when the interest rates in the overall economy go up. Overall though, this is a very safe way to borrow, just be sure you can maintain your payments.
If you have money in a 401(K) you may be able to borrow from it. Check the language of the plan to see if loans are allowed, but oftentimes they are. Many plans allow you to borrow up to half of the amount in the savings plan. You will have to pay interest on this loan, but the interest goes back into your account for you to recoup when you can tap into the savings plan. This is an excellent way to borrow money if you have such a retirement account that allows it.
Buying on credit
Oftentimes the companies from which you buy supplies and goods will offer lines of credit. They may offer payment plans that are due every 30 to 60 days. The interest rates offered by these companies may be much lower than a credit card company’s rates.
The most difficult part of starting a small business can be finding the money to get off the ground. There are countless sources of money, but three of the most common sources are home equity lines of credit, retirement savings and buying on credit. Thousands of entrepreneur have started with a nice mix of the above three sources of income. For more advice on how to raise income for small businesses stay in tune to the website and check out part 3 of this series.
Want To Read More?
 Fred S. Steingold, Legal Guide for Starting and Running a Small Business 153-156 (Betsy Simmons ed., Nolo 10th ed. 2008).