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If your business is starting to grow and there’s a large investment that you can’t seem to obtain, then perhaps it’s time for you to consider self-funding your small business. Here we will explore the pros and cons of self-funding your small business as we detail why it might be beneficial for your long-term growth.
Why You Should Self-Fund Your Small Business
1. You can improve credit rating
A lot of small business owners do not have a good credit rating because they don’t manage their money well. Because of this, it’s harder for them to get loans from banks. However, there are companies offering loans to people with bad credit, and it can be a good chance to improve your credit score. Although this argument favors self-funding, using a loan to supplement a small portion of your total capital can be beneficial. If you invest a large part of your own money into your business through self-funding, it will have a positive impact on your credit rating as long as everything is going well.
2. You take full control of your company
When you are able to self-fund your small business, then that means that no one else has gotten involved in investing capital into your company. That makes sense since you’ll own 100% of the company once it’s started growing. It may not sound like much at first but when you get down to really thinking about what this means for you, then you’ll understand why self-funding is a great idea.
If you’re able to self-fund your business from the beginning, it can show a pattern of success and may lead other investors to want to get involved with your small company because if it’s been successful so far, then there might be another opportunity around the corner. Not having investors during the early stages could allow for more growth opportunities later on down the road because those who invest in start-ups might want control over your company or take away certain rights once they get involved with your company at an early stage.
3. Your hard work is acknowledged
When you run a company without any investors, all of the profits go right back into the business which shows your commitment and hard work. It also shows that you are strong-willed and determined. If you’re able to pull off self-funding your small business, then it shows how motivated and driven you really are about running a company and making things happen. Small companies need this kind of drive; otherwise, they’ll never push forward if they don’t have direction or motivation behind their efforts which should always remain as one of the most important qualities as a business owner as time will continue to pass by. This is something that investors will respect you for as they know all of the risks and stresses that come with running a company.
4. Self-funding is a cheaper
A lot of people think that it’s always better to take out loans from banks because you don’t risk losing any of your own money if things go south, but this isn’t true at all. With bank loans, you have to pay interest on top of everything else which increases the cost of business; however, with self-funding, there are no additional costs and therefore puts less strain on the budgeting process.
Why You Should Not Self-Fund Your Small Business
By now you know about the merits of self-funding your small business but there are also some reasons that this kind of capital infusion is not favorable. Some of them will be discussed below.
1. You risk losing a lot of money
Having too much personal capital means that you have more to lose if things go south instead of having an investor who would be able to take on some of the losses, especially when times get tough for your small company. This isn’t always a bad thing but it’s worth mentioning in case more people are looking for investors rather than doing things on their own even though doing it yourself is an option too.
If you don’t know what to do with your money or how to use it, then it’ll be a wasted opportunity for your small company because nothing will be developed during those times when you might not make any wise investments at all. The key is always knowing where and when to spend your money which could end up being an awful move if done improperly. These are mistakes that are hard to correct once they’ve been made so take notice before simply putting the money into your business if you’re not sure what to do with it right away.
2. You may lose control
Taking out a loan from a traditional lender like a bank allows them to have some degree of control over your business. The bank will monitor how you invest their money and can influence your decision-making process which may not be a good thing if you don’t agree with them.
3. Business becomes your first priority
Investing your own money into your company is a risky move as it means that you have to deal with any problems from an emotional standpoint as well as a financial one. If things aren’t going exactly to plan, this can affect your mental health and wellbeing so before you decide to jump in head first, think about why you’re doing this for the business and whether or not it still feels right.
There are lots of benefits associated with self-funding your small business but also some drawbacks as well. It’ll really all depend on how much money you’re willing to put into starting up something new and then how good you are at determining where exactly that money should be spent during those initial stages. That’s the reality of self-funding doesn’t always prove to be a good idea but it can definitely be done if you’re smart about your actions and know what to do with the money that you have as well as how much of yourself you want to put into things. It’s a fine line separating the two camps but one that should always be addressed as soon as possible before getting involved in any business start-up.
Whether or not you should invest your own money into your business will depend on how financially secure you are and what type of business you run. If things start to get complicated, it’s always better to seek professional help before doing something that could seriously hurt the company and your mental wellbeing.