DC DOING BUSINESS GUIDE 2018/2019 43
ISSUES TO CONSIDER ADVANTAGES DISADVANTAGES
PERSONAL SAVINGS
Consider all of your accounts,
including traditional savings,
certificates of deposit, and
money market accounts.
Assemble statements for savings
accounts (traditional savings,
money market access, and
certificates of deposit)
Prioritize savings accounts from
lowest to highest earning, and
liquidate in that order, as needed.
• Funds are available
immediately.
• There are no
interest charges or
processing fees.
• Withdrawal penalties
can be high.
• You will not have any
fall-back cash in times
of emergency.
• Diminished savings may
work against you should you
seek a commercial loan.
PERSONAL ASSETS
An often overlooked way to
raise capital is to sell some of
your existing assets. This could
be selling a car, boat, timeshares,
property, or, if you are a
business, accounts receivables.
Research the asset’s market on
the Internet, in newspapers, and
by making phone calls.
Consider the target audience
for the asset being sold, and
choose the best sales method
accordingly.
• The asset is readily
available for sale.
• You net all the profits.
• Factoring can help you
even out your company’s
cash flow without diluting
equity or incurring debt.
• The market may not
place the same value on
the asset as you do.
• The asset can no longer
be used as collateral
against future loans.
• Factors’ fees and
rates can be high.
FRIENDS & FAMILY
Loans from family and friends are
a common form of financing for
start-ups and small businesses to
boost performance or enhance
balance sheets prior to obtaining
more formal secondary money.
Loan agreements should be in
writing, and with full disclosure,
even if made with friends or family
members.
Do not borrow more than the lender
can afford to lose.
Determine how involved the family
lender will be.
• Can be arranged quickly
• Friends and relatives
invest because they
know and trust you.
• There is no application
or processing fee.
• If your company does not
succeed, your relationship
can be adversely affected.
• The family member may
become too involved.
TRADE ACCOUNTS
Credit extensions from trade
accounts is another source of
business capital. Suppliers may
choose to allow invoices to go
unpaid for 30 to 60 days or may
draft a formal agreement issuing
credit for a specified period
of time.
Ask if there are any additional fees
or consequences associated with
paying invoices late.
Consider your rate of profit as you
weigh your ability to pay over time.
Understand the consequences
of potentially being viewed as a
credit risk.
• Can be arranged quickly
and on a relatively
informal basis
• There is no application
or processing fee.
• Must be used carefully. If
you repeatedly ask for an
extension, vendors may
view you as a credit risk
and refuse to do business
with you in the future.
RETIREMENT ACCOUNTS
You may have a retirement
account from which you can
borrow. In general, this is a
highly discouraged method of
financing because of the tax
implications.
Call an accountant or the IRS to
determine the penalties associated
with early withdrawal.
Evaluate the life consequences
of taking money out of your
retirement savings.
• The money is
readily available.
• Funds are available
immediately.
• Tax penalties can be severe.
PERSONAL CREDIT CARDS
Many business owners use
personal credit cards to pay for
start-up expenses, although it
is not advisable to mix personal
and business finances.
Calculate the credit card interest
you pay now and factor in how this
will affect any future loan plans.
Consider an equity loan if you own
a home or other real estate.
• Money is readily available,
especially if you have
good personal credit.
• Equity loans could
provide significant
savings on interest rates
• You will pay higher
interest rates.
• Too many credit cards make
you look overextended
when potential lenders
generate your credit report.
CURRENT
RESOURCES
INITIAL CONSIDERATIONS
In order to determine how much
business financing you will need and
what is available to you, you will need
to assess your current resources,
complete your financials, and obtain a
credit report.
YOUR CURRENT RESOURCES
If you ask business owners how they initially financed
their businesses, you will find that most met their
company’s needs through a variety of means. Depending
on your business and growth strategies, evaluate your
current resources before turning to outside financing.
Take inventory of the financial resources that you may
already have available, including: