If you are thinking about starting a company, you have also likely thought about different ways to fund it. While you may assume that you need a loan to fund operations, that may not necessarily be the case. For some startup business owners, it may be possible to use their own money to pay employees, fulfill orders or cover other business expenses.
Take Money Out of a Retirement Account
If you have an IRA or 401k, it may be possible to take money out of that account to finance your business. Depending on how you structure your company, it may be possible to create a 401k plan for your new business and rollover funds from your current account into the new one. From there, you can use the money to fund operations while paying less in fees and taxes. However, you will still likely have to pay income taxes and an early withdrawal fee if you plan to take money out of an IRA to run your company.
Use Existing Savings
While using money in a retirement account may be ideal for some, it may not be the best option for those who have a large savings account. Using money in a savings or checking account avoids the need to pay income taxes or early withdrawal fees. It also eliminates the need to ask for a loan or to sell equity in the company to raise capital. Using existing savings may also avoid the need for those with poor credit to use car title loans online to get cash quick.
Find Outside Investors
It isn’t uncommon for companies to look for outside investors to help fund operations. Unlike a loan, an investor is buying equity in the company with the hopes that they will see a return on their investment. In some cases, getting an influential investor can open doors to new markets or provide legitimacy to a new business. However, taking on investors may be problematic for those who wish to maintain full control over the company’s future prospects.
Ask For Gifts
Instead of asking for loans, individuals may instead decide to make gifts that can be used to fund your company. Your parents may be willing to make such a gift as a show of support while your friends may also be willing to make gifts instead of loans. Your employer may also be willing to gift funds to you that may be used to operate a business or help you cover your own expenses until your business is profitable.
Each year, an individual is allowed to make gifts of up to $14,000 per recipient per year with no tax consequences to you. Couples are allowed to give up to $28,000 per person per year with no consequences to you or your company.
Starting a new business may be the perfect way for an individual to take more control over his or her career. If you have ever wanted to be your own boss, it may be easier than you think to do so without going into debt. Whether you choose to use an existing retirement funds, a personal savings account or seek gifts from others, funding your business without debt may make it easier to operate now and in the future.