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3 Reasons to Start Your Business Debt-free
For many entrepreneurs, starting a business often means taking on debt in the form of loans, maxed-out credit cards, borrowed monies from family and friends, etc. While it's a great feeling to know you have enough backing to get your business off the ground, it's less encouraging when those monthly payments begin rolling in... plus interest.
Starting a business debt-free may not be easy, but it's certainly possible and well worth it in the long run. Businesses that don't take on debt are more likely to not only survive during an economic recession, but thrive. Here are three other reasons to put in the effort to launch your business debt-free:
- There's no interest... ever.
By paying your start-up costs with your own money, you'll never have to worry about the interest rates that come with loans and lines of credit, potentially saving you thousands of dollars. See what a nice ring that has to it?
- You'll never have bill collectors knocking at your door.
In the unfortunate event that you have a stint of less-than-inspiring profits, paying back loans often takes the backseat after necessary bills such as rent, utilities, payroll, etc. Go long enough without making a payment, and you'll surely have bill collectors lighting up your phone, plus it will be detrimental to your credit report. But if you're debt-free, that's a problem you'll never have to worry about.
- It looks great on your credit report.
Being able to start a business without having to apply for funding shows that you're responsible with your money, and that'll reflect nicely on your credit score. In the event that you need to apply for credit down the road, lenders will be much more likely to approve your loan and give you the lowest interest rates as a result.
401(k) rollovers are a perfectly legal and viable option for eligible business owners to consider. Made legal by the Employee Retirement Income Security Act of 1974, 401(k) rollovers don't trigger a tax penalty when set up properly, and they usually only take a month to finalize, allowing you to get on your way to business success faster.
Using retirement funds to invest in a business allows you to start your entrepreneurial journey completely debt-free. Since it's not a loan, you won't need to make monthly payments to a bank, and there are no pesky interest rates to suck up your money. What's more, this option can also be combined with other methods of business financing, allowing you to more easily meet your target amount.
Starting a business debt-free is a great investment in your future, and it doesn't have to mean working for years until you have enough saved up.
If you have a 401(k), IRA, or other eligible retirement account, you can actually use those funds to invest in a business or franchise of your choice using a structure known as Rollovers for Business Start-ups (ROBS). Setting up such a plan can be pretty simple if you team up with an experienced provider, and it doesn't incur tax penalties. What better way to use those funds that to invest them in yourself?