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REDDITWho doesn’t like some extra income! We all wish for it but are often scared to take risks. But, if you have your personal finance in place, you can actually start an additional firm and earn handsomely from it.
First, you have to decide which type of business you want to invest in. Once that is determined, you have to then figure out the most important thing – where will the capital come from? Where do you begin?
Self-Financing
The ideal place to start is your home itself. Self-financing is gradually turning out to be the most preferred mode of financing. What is more, majority of business start-ups are adopting this method. This is because when you go out into the market and approach other sources of financing like venture capitalists, the government or bankers, they will be keen to know how much money is being put by you into the venture. This is not very surprising. Just think from their perspective. If you do not have the required faith in your venture and cannot put your own money at risk, why should others risk theirs?
Conduct a Detailed Inventory of Your Assets
Start by preparing a comprehensive list of your assets. In all probability, you will discover resources you had simply forgotten or did not even know existed. Assets comprise everything from equity in real estate and savings account to recreational equipment, vehicles, collections and retirement accounts. Some of these assets could be sold for cash or used as collaterals to get a loan. The choice is yours. If you have direct debit facility in your parent business, it will be easier for you to calculate the amount of liquid cash you have in your hands or are likely to get in a month’s time.
Use Investments as a Resource
If you have investments, those may be used as a resource. With the help of your brokerage accounts, you can arrange loans with low interest margins against securities and stocks. However, there is a downside to it. In case the market falls when your securities are serving the purpose of your loan collateral, your broker will give a margin call to you in order to request you to give more collateral. Of course, there will be a time period within which you have to supply that. If you fail to do that within the specified time, the broker will ask you to sell a part of your securities for shoring up the collateral.
You can also consider your personal line of credit for the purpose. Quite a few businesses have been started successfully on credit cards. But, remember this is one of the costliest methods of financing yourself.
Get a Home Equity Loan
If you are the owner of a home, you can apply for a home equity loan on the portion of the mortgage already paid off by you. The bank will either pay a lump-sum loan amount or outspread a line of credit on the basis of the equity in your home. A home-equity loan has the capability of becoming a considerable line of credit, depending on the worth of your home.
Fall Back on Your Salary
Another way of financing your new business is by stashing away money from your present salary (in case you hold a job) until there is enough cash to launch the venture. If you are too impatient and cannot wait, cut your full-time job to a part-time one. This way, you will have a steady supply of funds until your business venture starts to rise.
It is always a good idea to use your own money for starting a business. The larger you invest, the easier it’ll be to derive capital from different sources.
About the Author: Samuel Clarke is a former business journalist who keenly observes current business trends and shares his analysis of the present business market along with business advice, future forecasts and predictions.
