Should You Tap Into Personal Savings to Start a Business?

It could be a boon to your business, but consider the details.

Building a business takes money. If you’re starting a brick-and-mortar traditional business, it could take tens of thousands of dollars to get things rolling. If you’re dealing with intensive infrastructure needs, you may need even more — in the realm of hundreds of thousands or millions of dollars. At the other end of the spectrum, you may be able to start a microbusiness for just a few thousand dollars.

In any case, you’ll need to put together some kind of plan to acquire these funds. You could get a loan from a lending institution to cover most of your expenses or you could work with a venture capitalist or angel investor (depending on the type of business you’re starting). You could even try crowdfunding or seeking help from friends and family members.

As a complement to these approaches, or possibly as your exclusive mode of funding, you may consider tapping into your personal savings and investing your own capital. But is this a good idea? 

Inherent advantages to using your own capital

There are a few immediate advantages to using your personal savings to build a business. For example:

• Reduced interest. If you take out a loan for the business, you’ll pay an interest rate on the principal. You can avoid this by contributing the money yourself.
• Greater ownership percentage. Accepting funding from VCs or angel investors often means diluting your shares of ownership. You don’t have to do this if you go it alone.
• Faster starting action. Processing loans and formalizing investment deals can take weeks or even months. If you want to get started as quickly as possible, personal funding can help you build that momentum.

Read more: entrepreneur