There is a saying, beloved of many (but sadly not all) gamblers, that goes along the lines of “only bet with won money”. If you are going to risk cash, make sure it isn’t your own. A lot of people in business have made this their motto: they are determined to make money and will take risks to do it, but not with their money. When it comes to making your way in business, is it better to fail than to risk your own cash?
On the other side of things, are there times when it is worth using your own money, or your assets, to service your business? Sometimes a business can be temporarily over-leveraged. In order to advance, it needs to borrow, but its streams of credit are for the moment tapped out. What do you do?
Are there times when it is OK to leverage your personal finances to give your business a boost? As long as you do it securely, there may be a way.
How Much Do I Need?
The first thing to bear in mind when using personal finance to service a business is “How much will this cost me?”. If you have a house which is at a significant value, you may well have borrowing power. But you have to be very confident that you’ll be able to wipe out that debt in good time. You may need to re-mortgage the house, and this is something you can do as long as you’re sure of a quick return on investment.
How Can I Be Sure Of That?
That’s the key point. If someone shows up in your office, telling you they can turn £100,000 into a million overnight, don’t hesitate to show them the door. Get-rich-quick schemes are not sound investments. However, if you need to borrow in order to invest in equipment – which will then unlock earning potential – that’s another matter. Banks will run risk analysis before lending. So should you, before borrowing.
How Do I Go About Doing This?
If you’ve decided to balance personal finance against business needs, you’ll be looking at releasing equity in your home. So how do re-mortgages release equity? Well, they look at how much of your home you own outright, and the value of the house.
Based on that, they can release the amount of money your “share” of the house is worth. But if you can’t service the remortgage, then all of the house belongs to the lender. They say you have to speculate to accumulate – but don’t translate that into taking a blind risk.
Understand that it’s not always a bad idea to release equity in your home to allow you to borrow for your business. However, it needs to be the most calculated risk you ever take. You can, too easily, be left with nothing if you’re not clever about how and when you borrow. Additionally, make sure it is a one-time thing. If you constantly have to re-borrow personally to pay for your business you don’t need new income streams. You need a better business.