There are things we can do help us expand our home-based business and this task will require plenty of money. In many cases, it is important for us to look beyond normal financing options. This will define the further progress and there are multiple ways we can choose to finance our home-based business.
- Personal savings: Personal savings could be the best source of financing for our home-based business. It should be very easy to tap and it doesn’t involve any kind of paperwork. However, we should be aware that using our personal savings mean that we are depleting our safety reserves needed for emergency purposes. Funds will be transferred from very low risk containers into a high risk one.
- Whole-life insurance: This should be another area where we can get some money for our business purposes. However, we should borrow against our policy, if we want to get the cash without paying any kind of tax. Loans should be remain tax-free if we pay premiums when due and keep our policy intact. Again, we are converting a low risk investment and making it into a high-risk one. If we default on repaying our loan, it is possible that we will lose our policy and all the amount of money that we have paid in the past. The amount distributed to our beneficiaries will be significantly reduced if the loan isn’t repaid in full before we die,
- 401K plan: If we have saved enough money with the 401K plan, we should be able to borrow up to $50,000. In this case, credit checks are not necessary. Interest rate is usually two or three points above the standard prime rate. If we prefer to do it, we could repay the loans with salary deduction over specific period of time. However, we should be aware that if we choose to do this, the amount of money invested toward our retirement will be reduced. The money deductions will be used to repay our loan. If we can afford it, it is possible to get our salary deducted further, so we won’t sacrifice some of our 401K money. IRS could consider our failure to repay the loan as a premature distribution and we will be asked to pay 10 percent penalty for early withdrawal.
- A Home-Equity Loan: This kind of loan requires application and we should be credit worthy. In general, about 90 percent of our house’s equity value can be borrowed. Loan interests should be tax deductible. It is obvious that the equity value of our house can be significantly reduced or even completely eliminated. Again, this is about diverting fund from safe investment to a high one. This will be like renewing a mortgage on the same house, putting us at risk of foreclosure if we default. So, before we use this kind of financing, we should think really carefully.
These financing methods should be under our control and business plans are usually not required. Each method has advantages, risks and disadvantages; so we should be very careful.