Financing a new business??

[Flbiz]

So far it looks as if banks don't just lend out money to just any fool trying to start a business.
Looking for some advice on weather to finance myself with my 401k paying myself back interest.
Or take a chance with someone else's money paying a higher interest rate.
Only looking for 15-20k to start a small retail business for my wife.

[bizbuyer]

Starting a new business is a thrill, however without collateral and a positive growth of revenue, many banks will pass. If I was in your position, I would look at buying an existing company. Leverage your investment and purchase a percentage of the company (Shares can be offered as collateral). I hate to use the word because it is taboo but "Bootstrap" your first investment and then you will have the capital to expand and create startups if that is what you want to do. I was taught that business owners usually are not liquid so any opportunity for an investor to offer cash to help them expand or buy them out is usually met with open arms. Just be careful to not deal with a shady business owner who "cook" the books. You may get stuck with a lemon.

[huggytree]

Banks wont loan you money because odds are you will fail....realize this before you start borrowing from your 401k

i recommend getting a 2nd job for a year and saving up that $20k

i wouldnt ever touch my 401k



take a 2nd mortgage on your house?

borrow from relatives (and make enemies if you fail)

get 10 credit cards and max them out

these are all idea's people do every day to start up---i wouldnt

nothing sounds as good to me as waiting and saving up the $$ yourself

i planned up for my business for years...saving and preparing.....your also supposed to have enough saved up to live off of for a year.......so you may need $80-100k saved to be the most conservative....what happens if your business takes 6 months to get moving and profitable....remember the odds are you will fail....dont let it make you homeless w/ no retirement

[Fulcrum]

I wouldn't call bootstrapping taboo. It may be an overused buzzword, but ask yourself why it's overused. Traditional lenders, contrary to what they advertise, are not open to lending to business.

15-20K is not a lot of money from a business standpoint. When buying a business, 20K will probably get you into a business worth about 100k on the top end providing the seller is willing to finance the sale.

@bizbuyer
You are somewhat correct when you say "business owners usually are not liquid so any opportunity for an investor to offer cash to help them expand or buy them out is usually met with open arms". I know many small business owners, myself included, who would not meet investors with open arms. Yes, I would meet with them and listen to what they have to say, but any deal that may get done will be done on my terms at my price.

[jonathant]

What kind of business are you looking to start? Depending on what kind of business you are planning to start you might want to seek funding from crowd funding website like kickstarter. Also, if you live in the U.S., there's a new law coming this year that would allow individuals to invest in new businesses for an equity stake. This would be a much better option than getting a loan from a bank.

[gaseousclay]

I think it depends how big of a loan you're looking for. Tapping your 401k might not be the best route, especially if you'll deplete half your savings. BUT, a very small loan from your 401k might work if a bank won't give you a business loan.

I actually applied for a small loan against my 401k, but it's an incredibly small amount (about $2500). I will repay the loan back into my 401k over 4.5 yrs in small increments, so about $25 per paycheck from my full-time job. The only downside to financing a business from your 401k is if you lose your job you're expected to pay back the loan in full, otherwise you'll be subject to penalties. This was worth the risk to me because I didn't want to take out a bank loan and I have access to the money right away.

[Harold Mansfield]

So far it looks as if banks don't just lend out money to just any fool trying to start a business.

Best opening line ever. And true.

Using your own money is always the best bet for many reasons:
First of all, it's your money.
More importantly, if you do need additional funding investors feel better when you have your own money invested, rather than you just looking to risk theirs.

Starting a business is hard. Starting a business in debt and on a shoestring budget is like swimming against the tide wearing brick underwear.
If you feel confident in your idea and abilities, you should be chomping at the bit to use your own money to invest in yourself.

If you aren't sure that you would risk your own money, then you may want to rethink how solid your idea is.

[bfg9000]

Personally, I dumped my 401k and had a couple credit cards that helped to get me going. It's still too soon for me to say whether or not it was a good idea, but there wasn't a whole lot of funding options out there for me. In addition, I work a second job to help keep things rolling while the business is still taking off. Turns out to leave me working 16-18 hour days, but I'm confident that it will pay off in the end.

On a side note, my dad owns his own business, and unlike me, he bought someone's existing business. The upshot is that he walked into a running business that was already making money, and most of the high foodservice expenses (ovens, mixers, etc) were already in place. When he got laid off of his 9-5 job, he used his severance pay as well as his 401k to finance it.

In either situation, we both put up our own money to get going for a couple reasons. First, we already had the money, so we didn't have to ask someone for it. We also had the confidence that starting the business was an investment, and like any investment there will be a return over the long term. You may not see that return for a few years, but if your plan is sound, you will make that money back. Secondly, taking out a loan come with the additional costs of paying back that loan as well as the fact that most banks require 3 years of operations before they'll even consider approving a loan.

Another thing to look at is possibly selling something to help cover the cost. Don't get crazy with it, but in my case, I had a project car that I used for SCCA racing that I sold to help buy inventory and fixtures. My store sells video games, and I used my entire collection as inventory just to save a few bucks. I bought fixtures from a Blockbuster that was closing down, so I got them for far cheaper than buying new. Hell, I even considered selling my house and moving into an apartment for a while.

I don't know if my input is going to help you, but I hope it does. Either way, good luck!

[Paul]

So far it looks as if banks don't just lend out money to just any fool trying to start a business.
Looking for some advice on weather to finance myself with my 401k paying myself back interest.
Or take a chance with someone else's money paying a higher interest rate.
Only looking for 15-20k to start a small retail business for my wife.

If "someone else's money" is not personaly guaranteed or colateralized by you then that is definitly the right choice, assuming the interest is manageable. If you are responsible for the money anyway then might as well use the 401 k.

Always use other money when you can on new projects or businesses that may not succeed if you are not "personaly" responsible(again with manageable interest and terms).