If you're starting a new business, it's likely that you'll need to invest some of your own money. It can be difficult to borrow from a bank or attract other investors unless you're also investing some of your own money.
The easiest and cheapest way to finance a new business is to use your personal savings. However, this can be risky, and you may not have enough to cover all the funding you need. You could also consider:
- getting a mortgage - or a second mortgage - see commercial mortgages and lenders
- borrowing privately - see financing from friends and family
- getting an unsecured loan, or borrowing on credit cards - see bank finance and advantages and disadvantages of using payment cards for purchases
- selling possessions or assets
You should always think carefully before borrowing. Try to match the loan to your needs. For example, using credit cards for long-term spending can be very expensive. Some loans can be inflexible. You could end up paying interest for many years.
Advantages of self-financing your business
Funding your business yourself has many benefits that can contribute to the stability and success of your enterprise. Here are the key advantages of using personal funds for your business.
Exact budget awareness
By using your own funds, you know exactly how much money is available to run your business. This eliminates the uncertainty and time-consuming process of securing external funding from investors or banks.
Financial control
Self-financing gives you much more control over your business finances. You won’t need to repay loans or rely on outside investors or lenders who could withdraw their support at any time.
Retain full ownership
With self-financing, you keep 100% ownership of your business. This means you will get all future profits. You won't have to share them with investors or lenders.
Prioritise business expenditure
Funding your business yourself makes you live within your means. You’ll only invest in essential business equipment and marketing when absolutely necessary. This can help you to prioritise your business expenditure and avoid excessive spending.
Disadvantages of self-financing your business
Self-financing your business has many advantages. But, it's important to be aware of the potential downsides. Here are some key disadvantages to consider when using personal funds to finance your business.
Financial pressure
Using your own money to finance your business may put a strain on your family and personal life. You may not have enough money left over to cover your living costs.
Contingency fund
You should try to leave a contingency fund, to cover unexpected expenses and difficult periods.
Loss of assets
If your business were to fail, you could lose your home and other personal possessions.
Missing out on mentorship and networking
Investors often provide more than just money. They can offer valuable mentoring and networking opportunities. By self-financing, you miss out on these resources. You will need to make your own contacts and find mentors.
To explore other options for financing your business see business financing options - an overview.
Watch a video that outlines business finance options that may be available to you.
