If you have to finance your own business, you can do this in different ways. You can choose to use your private assets – that way lends you -, you can borrow business money or call on family, friends or investors. Only a selection of the number of possibilities. In this article we will discuss the use of private assets and how you can do this as safely as possible.
Benefit advantages and disadvantages with private capital
The biggest advantage of financing with your own money is that you have the money right away. In addition, it saves you a lot of long talks with potential lenders and you do not have to write a business plan. And you do not have to pay anyone back, and that can give peace. However, there is the risk that you yourself are in financial problems and you lose your money if the company goes bankrupt. That is why it is important to think very carefully about the decision to finance the business with private capital and to prepare well if you choose to actually do it.
Discuss the issue at home
If you have a relationship and you live together, it is wise to tell the partner of your intention to use your private assets as a loan for the business. This also has something to say about this. Honest and discussing the issue is not only good for the relationship, but it also ensures that you get a clearer picture of what you want to do. Is it actually such a good idea to use your private assets? You might only discover that when you do it, but you can assess the risks by discussing it.
Record the financing well
It must be clear to the tax authorities what a private and what a business transaction is. That is why it is already important to record the transaction. If the company goes bankrupt , you can prove that it was a business transaction with private capital. That way you could take the blame of the case as private from the tax. This is not possible if it is not clear that it was a business transaction.
Record and keep appointments
Keep to the agreements you made with yourself (or partner). Capture them and come after them. As a private financier, it is easy to deviate from the agreements you have made about the private assets. Determine what amount you borrow from your private assets to the business, and record the interest at which you will do so. Transfer that interest from the case to your private account. If you do not do this, you run the risk of undermining the commercial nature of the agreement and – worse still – you run the risk of getting less back in the event of a bankruptcy.
Solve the loan as soon as possible
Private capital is often used to set up a company. If the company is wealthy after a few years (or earlier), it is wise to repay the loan. Do not continue borrowing money if you do not actually need it anymore. Make sure you pay off the amount correctly, that saves you in paying interest and therefore reduces the risk of money problems.
Borrowing or investing
You can also always choose to take out a loan if you consider the risk too high. In that case, you must certainly draw up a business plan and enter into a dialogue with lenders. Or you can choose to find informal investors or other investors who can ‘sponsor’ you.