Putting Personal Funds into a Business

(STL.News) You are starting a business, and you need some seed money, but how are you going to get it?  There are personal and financial pros and cons to any and every option you could think of, so before you dive headfirst into a plan, think about what your choices will mean for your personal life, your business, your timeline, and your long-term goals.  The path towards putting startup money into a business will likely look quite different than the path towards a smaller contribution aimed at maintenance.

Sales and Restructuring

The amount of money you need will be the leading factor in the approach you take to get it.  You have already decided that you are going to dedicate personal funds to your business needs but knowing where to look for that available cash is arguably more layered.  You can sell physical assets to create cash to be funneled into your business.  But what if you either do not have anything that can generate the funds you need or are not able to be able to offload something major, like a car, to make some money?

A less obvious option would be something like selling your life insurance policy to put more funds into the business.  This choice can mean that you are sacrificing your death benefits in favor of a lump sum of money right now.  Eligible individuals should know that the process could take up to three months and apply that information to their timeline accordingly.  Restructuring your budget in this way can also mean extra funds each month since you will no longer be paying into a policy.

Consistent Cutbacks

Personal sacrifice and entrepreneurship are basically synonymous.  Having said that, when you need to allocate personal money to your business, you are going to need to find manageable ways to cut back on monthly expenses to support the reallocation of your funds.  Every little bit will help, and if you can find ways to go without it in your personal life right now, your payoff, in the long run, can be significant. You might be surprised to find out that choices like getting rid of cable in favor of a lower-cost streaming service can not only save you money but are also so comparable that you will hardly feel the shift.

Investing vs. Lending

Loaning personal money to your business and investing personal money into it is not the same thing.  And although the amount of money pulled from your personal finances into your business might be the same regardless of the style, it is important to know that there are tax and ownership implications for each scenario.

Some of the factors involved with making a personal contribution to your business are the labels on the documents, the lender’s management rights, and the company’s ability to obtain loans from outside lenders.  Putting personal money into your business is a choice that is not without both fiscal and emotional risks.  If the business cannot pay you back in full, or at least in dividends, then you have the potential to lose funds as both the lender and the borrower.