Home Business Start-Up Secrets
Where will the money come from to start up your business? There are many alternatives, and they all require careful planning. Look at all of your options before making a final decision. Here are some of the more common first funding options for you to consider.
1. YOUR SAVINGS ACCOUNT
The best place to go for initial start-up-capital is your own savings account. I suggest that you put fifty percent of your savings into the company for initial start-up expenses. While this may make you a bit nervous, it is by far the cheapest way to start, and it will demonstrate to others that you in your project. In addition to the blood, sweat, and tears that you'll put into your home business, you have to be willing to invest your own money, too! After all, if you don't have confidence in your project, why should anyone else? If you don't have enough money in your savings account, there are other options.
2. CREDIT CARDS
Many businesses that need working capital use credit cards. I have seen businesses use $100,000 lines on multiple credit cards to get things going. These cards would be personal lines of credit that you have previously established, and you would give a personal guarantee.
You can increase your credit lines if you don't miss payments, and if you pay at least the minimum on time. You can sometimes take advantage of special promotions to get a favorable rate. Some cards offer a low interest rate- at or below the U.S. Prime rate- for six, months if you use their cash advance check service. Then the rate moves up considerably, sometimes to as high as twenty-one percent. But those six months at U.S. Prime are at a better rate than any lender will offer a new or expanding company. Use the card for the six-month period, pay it off, and move on. If you need to find some offers, watch your mail for solicitations, check the Internet, or look in business magazines for credit-card fliers.
3. 401(K) OR KEOGH RETIREMENT PLAN
If you have left a position and have a retirement plan through your old company, you may be able to borrow against it at some value. You are basically borrowing your own money, but the rates are usually reasonable.
While I propose borrowing against your retirement plan, I do not recommend that you take money out of the plan permanently. There are large penalties, and the taxes of the pullout are severe. Taxes and penalties can wipe out as much a fifty percent of your retirement plan's value if you withdraw all of your money before you turn sixty-two years old.
4. LIFE INSURANCE
Your insurance policy may be another funding option, especially of you have a whole life policy with a sizeable cash surrender value. Call your insurance agent for the details of your policy. Every policy is a bit different, but you may be able to withdraw the majority of your cash for a good rte with not underwriting.
5. SECOND MORTGATE LINE OF CREDIT
If you own a home, you may be able to get a second mortgage and use the money for your home business. All states, except Texas, allow a homeowner to get a second mortgage to secure a line of credit for business purposes. (Texas does allow second mortgages, but the use of those funds is regulated.) Many mortgage companies, banks, or private lenders will lend from 90 to 125 percent of the value your home on a second mortgage. Some lenders will offer the line of credit only for a specific use; however, many larger lenders will offer a checking account type of credit line for business usage.
The interest rates on the loan can be excellent- much lower than credit card debt or unsecured lines of credit. Some of the larger lenders now process applications for a second mortgage line of credit on the Internet.
6. MORTGAGE-FREE HOME
If you don't have a mortgage on your home, you can obtain a line of credit for your new business by using your home as collateral. Once you are approved for the loan, you can write checks against a specific, predetermined amount that is secured by a lien on your home. This is an excellent way to use just the funds you need, when you need them.
7. PAWN SHOP
Don't turn up your nose right away, especially if your personal credit is lousy. Pawnshops may be a bit out of the ordinary for funding the next "mega" company, but everybody starts somewhere. If you have an old stereo system, camera, electronic components, or jewelry, and you need $1,000 for a new company computer, consider visiting the local pawn shop. See if it works. You have nothing to lose.
8. YOUR TOYS
Small business is demanding. When you are starting out on your own, you need cash. Get rid of the "toys" you may have accumulated over the years. Do you have a nice Harley, jet skis, a boat, snow skis, or a hot tub you haven't used in years? Plan ahead and get as much as you can by selling the items in the appropriate seasons. Think of your toys as cash, and sell them!
Source: Home Business Magazine
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