Backing a business loan with personal credit and assets pros and cons

One way that you can finance your business is by using personal credit and assets to back business loans.Essentially, the pros and cons of backing your business loan with personal credit and assets are that you can have a pretty large amount of assets to give to your business and you can use good personal credit to back up a business loan.The downside to using your personal credit and assets to back up a business loan is that your business goes down, your personal assets are what are going to be affected, along with your personal credit rating.

Many business owners end up either applying for commercial financing, which can be quite costly, or funding their business through personal finance.Personal finance has a number of benefits to it, which is that personal financing of business is:

• Easy and simple.


• Doesn't require complex paperwork.


• Doesn't require that you go in debt to a commercial bank or lender.

Of course, there are drawbacks to personal financing, particularly if you don't have enough money to actually finance your business.However, if you plan carefully, there are a number of things that you can do to ensure that your business gets up and running and runs more smoothly through a personal financing approach.

1.Understand yourself and your limitations.

• When it comes to planning your own business, especially if you are financing it through personal resources, you really need to know what kind of expense and what kind of risk you can tolerate.How many responsibilities do you have?How much of your money can you really afford to throw into a risky business venture?If you have children and car payments to make, the answer is not going to be the same for someone who has no other ties in the world and no other responsibilities.
• How much capital are you really willing to invest in your business?What type of debt are you willing to take on?If you decide these types of things before you even set up your business, then you will have guidelines that will keep you from getting in deeper than you actually want.

2.Plan carefully.

• Before you quit your current day job to spend all of your time planning your embryo business, think about what that would mean financially.It takes a long time to just go through all of the practical stuff and the research that is necessary for starting up a business.During this time, you won't be receiving any income.
• Work on your plan during your free time.Work out all of the details, including the smallest ones, while you still have another income.Look for free resources, such as an in-law's shop or empty design space.Try to have everything worked out before you quit your job.

• Before you quit your other job and start up your own business, line up at least one customer.This way you will not only have an income, but you will also have someone whom you can use as a reference for other potential customers.
• Map out your financial strategy carefully.Where will you get your funds for resources before you actually start making money?Plan for at least a year of overhead costs.
• Finally, save the money that you make.Even if you are successful, you should be frugal in your own spending habits so that you can continue to reinvest your profits into your business to make it even more profitable.