Page 82 - Azerbaijan State University of Economics

Ali Y. Abbasov: Modern Venture financing options in the U.S.A.

entrepreneur is serious and confident. Most bankers and lenders are not interested in giving loans

to startups. For this reasons, self-financing plays an enormous role in company’s early life time.

Personal assets, such as savings accounts, equity in real estate, retirement accounts,

vehicles, recreational equipment and collections are the most common initial source of business

start – up money (Cornwall J. 2008). Thousands of successful businesses have been started on

personal credit cards. While this is one of the most expensive ways to self-finance due to credit

card interest rates, this remains one of the most popular resources for new entrepreneurs. Some

life insurance policies offer the ability to borrow against the cash-value of the policy. These

loans usually carry reasonable interest rates. Since the amount borrowed will be deducted from

the death benefit, borrower does not have to pay it back (Cornwall J. 2008).

Retirement plans are another option. If the entrepreneur has retirement plan and is

starting a part-time business, then he/she can borrow against this plan and start financing the new

business. It's very common for such plans to allow you to borrow up to 50 percent of your

vested account balance up to a maximum of $50,000. The interest rate is usually one to two

percent above prime rate with a specified repayment schedule. The downside of borrowing from

your 401(k) is that if you lose your job, the loan has to be repaid in a short period of time-often

60 days. (―Self-financing your business‖ Entrepreneur May 2013).

There are a number of benefits of going down this route. Firstly, using entrepreneur’s

assets is the easiest and quickest money to secure. Nobody has to be convinced and no approval

process is required. Although using self-assets can take more time to start, it allows entrepreneur

to have a full control on product or service (Cornwall J. 2008). If entrepreneurs seek outside

financing, potential financiers want to see that owners are responsible enough to trust with their

money. They will be more willing to invest if business owners do first.

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