Starting a new business

[Flbiz]

So getting financing does not look like it's very easy.Does anyone have any advice on financing my self with my 401k or just sucking it up and pay a higher interest rate on a personal loan. Only need like 15-20k to start a Small retail business for my wife

[vangogh]

Sadly financing is one of those things where it's easy to get if you don't need the money and hard to get if you do. Only you can decide if investing your savings is the right move, but it is one way people start. When I was starting I needed money not so much for my business, but for my own living expenses. I charged up a couple of credit cards to help me pay bills where I could. It's not really the best place to get money given the interest rates, but it worked for me.

If you feel confident in the business and think it's something that will be profitable it's not a huge risk using money you have saved. It's a call only you can make though. Similar with the higher interest rates on the loan.

[michaelstark61]

To start a business is not the easy thing. And generating the funds is not the cake walk either. Their are lot of option for financing the business like loan from banks and other financial institutions or bringing more people who can financially contribute.

[cwillmoth]

Look around at different banks for deals on small business loans. You shouldn't have too much of a problem finding one for 15-20K. I personally don't like the idea of of tapping into 401K but people do it quite often when they believe it is the way to go. You just need to think of all the pros and cons for both especially in the long term. If you write out a solid business plan you might be able to get an investor for just 15-20K.. something to consider.

[tinker9696]

In my humble opinion if you believe in your business its always worth the risk to use your own money. My concern is that when you say you only need 15/20 k it often turns out to be more so be prepared for that as well. Good Luck!

[huggytree]

0 chance id use my 401k

i dont think you'd ever find 1 financial adviser that would recommend ever touching it

take a loan and pay yourself back

[chrismarklee]

Why not start out small time. It will take you at least a year to get a solid marketing program started. Social media and SEO takes tremendous amount of time.

[DOREYCOM]

Hello

If you can wait a bit and put more on the side for both of you first and more on the side for your project, that would be much better.
In my business, when I started in Europe, I had a small loan like that and I've put all I had (the equivalent) as a guarantee. I had big problems when clients were long to pay me or were long to sign my first contracts... When you start in the B to B, it's always like that.
I've managed by being a dare devil to get clients or small business loans to help in between, but I wouldn't do that again because things can happen, like a member of your family getting sick and dying suddenly... If you are too short in money or saving because you launch a business, you play with a fatal hazard, you take the risk to plunge your family and yourself in big risk...quick way to hell...
My advice for you is wait, save more, borrow less (and at small rates)... Make an LLC, protect your personal assets..

[Fulcrum]

I completely agree with Doreycom. Being underfunded SUCKS. Traditional lenders will not even consider you as a candidate for a loan. I spoke with an owner/operator of a national home building products franchise with 20 years of ownership and consistent numbers and the banks would not even consider giving him a business loan.

Your best bet is to save what you can, start small and take on no debt if you are unsure about being able to clear the debt the next time a payment is due.

[sogood]

I completely agree with Doreycom. Being underfunded SUCKS. Traditional lenders will not even consider you as a candidate for a loan. I spoke with an owner/operator of a national home building products franchise with 20 years of ownership and consistent numbers and the banks would not even consider giving him a business loan.


He's right, its no secret banks aren't lending. There are alternative sources but most still won't touch you until you have at least 1 year in business and a minimum of $200,000 annual revenue. If it doesn't take long to save it and starting the business isn't time sensitive then thats the way to go.

[mrphuntt]

I think there are a few things for you to ponder, and many have been mentioned already. For any new business, it's always best to first know you're selling into a large market of crazy interested buyers. Sometimes you can even pre sell your customers and get them to pay part or all up front, but for a small retail store that might not happen. There are funding sources that can help you with use of your IRA/401k (that's part of what I do myself, is help get small business owners the funding they need), and even with a FICO score that's not stellar, you can still get funding. One of the programs I work involves getting your funding done with a partner who has a better FICO score, so maybe that's an option too. Also, with a business that will have you carrying inventory, I agree starting small and getting some positive cash flow up and running first is a really good idea. Once you know what's selling and making you a profit, then you can scale up.

[phanio]

Forget the 401k idea - given the small amount you are thinking about. To fund a business using your 401K or similar retirement plans, you will have to first create a c-corp around your business then change your 401k to a self-directed fund - then invest those funds for shares in your corp. This could cost you from $5,000 to $10,000 to accomplish - not worth the expense given the amount you need.

If you don't want the high rates of credit cards (which most people would do in our situation) go to a local credit union and apply for a personal line of credit. Easier to get than from a bank and the rate will be much lower than a credit card.

This was how I started my business. I found three credit unions in my area and apply for their lines of credit. Then used all three when I need the funds. And, since these were lines of credit, I only paid for what I used when I used it.