Implications of Using Your Own Funds for Your Business

Traditionally, the idea of investing personal funds into a small business has been frowned upon. Commercial activity is a risky affair, and there are no surefire bets in the marketplace. With the economic climate showing no signs of improvement, however, more small business owners are turning to their own personal funds to encourage the growth of their companies.

There are a range of methods for raising personal cash to invest in a business, from personal loans, to savings, or even a mortgage or remortgage of a home. The most obvious benefit of investing personal money into the business is that it leaves you free from any fees or conditions from an outside investor, and keeps you in control of your commercial activity. If you have funded your personal investment from savings, then you will also have no interest or fees to pay on loans or mortgages, and all of the money you invest can go to work for your business immediately.

Investing some of your own money into the business can also help to attract money from outside investors, who often like to see that an entrepreneur has their own investment on the line before they put in any cash. There are few better ways to prove your commitment to a business idea than to invest your own hard-earned money into making it a reality, and sometimes your initial personal funds can be leveraged into significantly higher investment from outside sources in the long run.

Unfortunately, the drawbacks to personal investment are equally evident and substantial. The obvious negative factor is that you will have significantly less money on which to live. Even if you have used your savings, thus maintaining your regular income at its usual level, you will have reduced your ability to react to the unexpected. A personal loan or mortgage can be even worse, draining your resources at a time when you are focusing on a business which may not yield immediate returns. It is absolutely imperative that you maintain enough room in your personal budget both to meet your continuing living expenses, and to afford unexpected contingencies.

If you are involved in a limited liability company, then an investment of personal funds can also take away the entire purpose of the ‘liability shield’. In other words, a limited company is designed to shield your personal assets from creditors, but this is not much use if your personal assets are already tied up in company funds! Make sure you think carefully before linking your personal fortunes to that of your business in this way.

Ultimately, as with anything in business, investment of your own funds is a significant risk which can pay off in the long-term. Before you pump too much money into your venture, make sure that you really believe in it, and that you are confident about the viability of your business plan. If you truly believe you are likely to succeed, then there is no reason that personal investment cannot pay off handsomely.

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