Limiting your liability
– In this chapter, we will discuss getting funds from personal means. And as you will see, there are many ways to get capital if your need is anywhere below 75,000 dollars. Some of them are illogical options for anyone starting his own company, and others are easily accessible but carry a high level of risk, which I personally am not going to encourage you doing. For example, deciding to put some or all of your savingsinto your company is an okay choice.
You alone can decide if it is wise or not to put all of your savings into your project. You know that you’re taking the risk of losing it all. But worse for worst, you’ll have lost your savings and will have to start building them again. From day one, you will know how much you’re putting into your company and what the maximum risk is. In this case, your liability is limited. It is limited to the capital you have put into your company. An alternate example on the riskier side of things is to max out your credit cards to get the capital you need to start your company.
If all goes well, I guess you’ll be fine. But if things don’t go as planned, you’ll end up having to repay those credit card loans, of which some can have very high interest rates. If you have a day job outside of the project, then I guess you’ll just have to be in for a rough ride. But if this project is also your only source of income, then you could put yourself in a very difficult situation. In general, I think that personal loans to start a company can be contracted but in a very limited way, which you should be able to manageif things don’t go as planned.
Otherwise, I advise against doing it. You should also know that in many cases, there’s a big difference between you or the company being the recipient of the loan. If you have personally taken the loan, then the institution from which you got it can go after you relentlessly until they have gotten from you the last penny for that loan. Since your company is a different legal person, it can get loans from all types of institutions, and would therefore be the one that the banks or other institutions would go after to get back their money.
If that company is a limited liability company, then the most you can lose is the capital you originally invested. That’s a safe way to take on debt to fund your company.
Using your own funds
– Using your own money such as savings to fund your company or project is the first and foremost, plain and simple, most logical way to start raising capital. You raise your own capital. You should like that option, because it will first be a great way for you to get a much better return on investment than any other investment out there. It’s a great way to start your company without sharing any of the control and ownership of the company just yet. And for investors, it’s a way to show that you believe in yourself and in your company, and that you are not afraid to bet on yourself.
On the opposite side, if you manage to get in front of investors without having invested a single dollar on your project, then those investors will rightfully question why they should invest in your project if even you are not willing to do so. Or worse – that you have not been able to save a few thousand dollars to get it started. Putting your own money into your company is a sign to everyone that you believe in what you’re doing. That includes your savings, and any money that you can get from your family, for example, to help you start your business.
It is, in short, any money that you can get that you won’t have to repay.
High-liability funding options
– In this video, we will review two options available to many people which puts your personal well-being and the well-being of your relatives in danger, but which still are part of the capital landscape and therefore, deserve to be described at least for completeness. The first one is about maxing out your credit cards to get the capital you need. I might not even need to explain the concept here of using your credit card to pay for everything you need to get your company started.Those loans usually carry very high interest rates and are long and difficult to repay.
If things don’t go as planned and you need more timethan expected to sign your first customer, or if customers take more time than expected to pay you for your services, then those loans will put a lot of pressure on you very fast. And in addition to worrying about how to sign more customers, you’ll be splitting your time between getting your company going and finding ways to pay back your loan. You could be putting your credit rating at risk as well, with all the consequences that come with it.
The second one is called a home equity loan. This is a loan that you can get if you own your home and have paid back a portion of the loan. Depending on the value of your home and the amount that’s actually left to repay, the bank could be inclined to grant you another loan called a home equity loan. If, for example, your home is currently worth $100,000 and that you have $60,000 left to repay, then you should be able to get a loan for up to 90% of the difference between the two.
And in this particular example, you could get more than $30,000 to invest in your business. The downside of this loan is that if you fail to repay your loan, you could lose your home. There are many safer ways to raise money, which we will be reviewing together in this course.