Using Personal Financing for Business Needs
Running a business is a challenge. Staying on top of market trends, tax, and general business documentation, and everything else that comes with running a business is demanding. The stress only increases if you’re in a situation where you know that your profits are not currently sufficient to sustain your business, let alone grow it. If you’re in that situation, you know how much of a toll it can take on your personal and professional life. In this situation, you might be looking at all of the various ways to bring in more money, be that a traditional business loan through a bank or the SBA, or seeking funds from investors or family or friends, or even crowdfunding. All of those present their own challenges, especially if you’re just starting off and don’t have a strong financial history for your business. If this sounds familiar, and you’re thinking that it’s time to look into personal lines of credit to help fund your business, you need to consider a few things.
The Pros and Cons
If you have a strong personal financial history than your business, it may be easier to secure personal funding than business funding, since business funding frequently comes with more restrictions and stricter eligibility requirements. The relative ease and flexibility of the personal funding definitely serve as an advantage, but you do need to consider that by using that to fund your business, you are mixing the two aspects of your life, and that can impact both your day-to-day as well as your accounting. This can be especially dangerous if the worst happens and you’re unable to repay. Not only will that hurt your business, but also your personal finances.
This type of funding does offer a specific advantage over a traditional loan, though, in that you only withdraw what you need, and only pay interest on what you withdraw. So, if you think you’ll need more than you actually do, a traditional loan will have you paying interest on what you don’t use in addition to what you do. In that regard, even personal lines of credit can be more beneficial than a business loan.
When considering applying personal lines of credit to your business finances, the most important thing is to plan. As long as you know how you’re going to use the funds, and are diligent about record-keeping, this can be a fantastic way to meet your business’s financial needs without going through the hassle of securing business financing.