Person in apron takes notes about funding a business with personal money.

Funding a business with your own money

Tuesday, August 29, 2023

Sipping your first cup of coffee in the morning, taking a hot shower in winter, watching a sunset at the end of the day … It’s easy to love the simple things in life. As for the complicated things — it’s a little harder.

If figuring out how to navigate the world of small business funding doesn’t fill you with joy, we don’t blame you. From finding lenders to crafting applications to comparing rates, there’s a lot that goes into it. The urge to avoid the complication of it all by funding your business with your own money can be tempting.

But should you?

If you’re thinking of using personal money to fund your small business venture, it’s important to know the risks and rewards that come with it.

How you fund your business is a big decision. So, let’s explore all the things you should consider before you leap without looking:

Two people meet to discuss different types of business structures.

Types of businesses: Which structure is right for you?

Before you can decide on the best course of action for funding, you need to decide what kind of business you’re going to build. Much like funding, there’s no one right way to structure your business. The best business structure for you could look different from the business down the street.

Here are the most common types of business entities:

Sole proprietorship


In a sole proprietorship, one person (aka a sole proprietor) owns and operates the company.

This is the simplest kind of business structure, so there are fewer legal and regulatory requirements to deal with. To that end, many small business owners choose a sole proprietorship to start their business — because of the ease of startup. A sole proprietorship often operates under the person’s name. However, some sole proprietorships operate under a doing business as (DBA) name. Each state has its own requirements for DBA registration, so be sure to check yours.

It’s also important to note that a sole proprietorship is a pass-through entity. That means the government taxes sole proprietorship business income through the individual’s income tax return.

General partnership (GP)


In a general partnership, two or more people join to form a business.

When it comes to taking on liability for debts and obligations, both general partners share the load. Like sole proprietorships, a general partnership is also a pass-through entity. But in this case, each partner assumes tax responsibility for their share of the income on their personal tax returns, instead of the burden falling on just one individual.

Limited partnership (LP)


In a limited partnership, two or more people join to form a business, but not as equal partners. There’s at least one general partner and at least one limited partner.

As we just learned, general partners are liable for debts and obligations. Limited partners on the other hand incur limited liability due to their limited contributions to the business (cash, services, etc). That means tax obligations for limited partnerships pass through the partnership, but the amount each partner is responsible for is based on their share of the business income.

Limited liability company (LLC)


In a limited liability company, the business receives benefits and liability protections similar to a corporation (we’ll get to that in a second), while receiving tax advantages similar to a partnership or sole proprietorship.

One significant advantage of an LLC? Protecting members’ personal assets from claims against the company. Keep in mind, some requirements for LLC registration vary by state. But generally, when starting this kind of business, LLC members should form an operating agreement. If you’re not familiar with the term, it’s a legal document that binds how the LLC operates between members. One more thing to note — LLCs often file for DBA names as well.



In a corporation, the company is considered to be a separate legal entity from its shareholders.

Translation: The business is responsible for debts and obligations — not the shareholders. This ultimately protects shareholders from personal liability. While liability protection sounds pretty great, there are downsides you’ll want to be aware of too. Corporations have higher tax rates than other business structures and more regulatory requirements, such as writing corporation bylaws, appointing directors, holding directors’ meetings and more.

6 ways to put personal money into a business

Once you’ve landed on a business structure, the next step is deciding how to fund it. While there are a lot of paths you could take to get your business the capital it needs, one is using your personal money.

In the context of starting a business, personal funds include any money in your bank accounts or any money you borrow or receive as an individual, meaning the loans are in your name — not under your business name. Most business owners using personal funds in their business draw from one of the following sources:

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1. Personal savings

Let’s start with the most obvious choice: pulling personal funds from money you’ve set aside in a savings account or investment portfolio. Leveraging the money you’ve saved up in a personal bank account is an appealing option since it lets you get your business off the ground without going into debt. While avoiding debt looks good on the surface, remember you’re still putting your personal savings at risk if your business launch doesn’t go as planned.

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2. Personal loans

Speaking of debt — another way to secure startup money is through a personal loan. Depending on the lender, you can expect personal loans to offer a higher credit limit than credit cards but lower than other forms of financing. A personal loan is tied to you as an individual, not the business. This can be a good thing if you haven’t yet established business credit since it uses your personal credit to determine your loan amount and terms instead. But don’t lose sight of the fact that your personal credit score will pay the price if things turn south.

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3. Loans from family and friends

Chances are your family and friends are your biggest cheerleaders on your journey to making your business dreams come true. If they’ve offered to support you by providing the startup capital your business needs, they may loan you the money with repayment terms attached or even in exchange for an ownership interest in the business. While this seems great in theory, bear in mind the possible strain it could potentially put on your personal relationships. If you decide to go this route, be sure to insist on a written agreement with terms and conditions for repayment.

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4. Home equity loan or line of credit

Yep, you read that right. You can fund your business with a home equity loan (HEL) or a home equity line of credit (HELOC). Both options offer a way to take advantage of the equity you’ve built in your home, but you typically need a strong credit score to qualify for these types of loans. While appealing due to their lower interest rates and higher available funds, don’t forget you’re gambling with your home if you default on the loan.

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5. Credit cards

As you’re building a new business, you may not be able to get business credit right out of the gates. This is where personal credit cards come into play. When in a pinch, personal credit cards can be a short-term solution to get quick access to funding for initial business expenses. However, remember that credit cards come with high interest rates — and your personal credit is on the line if payments are late.

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6. Rollover for business startups

One more option to self-fund your business is a rollover for business startups (ROBS). Never heard of it? This type of funding allows you to use personal retirement funds for your business without early withdrawal penalties. A word of warning — while this may seem attractive, if your business goes off the rails, so does your retirement fund. Future you likely won’t thank you for it.

External business financing: know your options

Sometimes, the risk isn’t worth the reward. If you decide against funding your business with personal money, there are still plenty of other ways to get the business financing you need.

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Business line of credit

Got a business credit card? You may be able to get a business line of credit too. This unsecured line of credit gives businesses access to a certain amount of money for business needs. This is often used for short-term financing and typically comes with higher interest rates.

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SBA loan

The US Small Business Administration backs loans that can reduce lender risk while making it easier for small businesses to get funding. These loans are provided by verified lender partners and often provide more flexibility than standard business loans.

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Capital lending solutions from Heartland

Heartland Capital offers a quick and easy guided lending experience. With over 80+ lenders and 10+ lending types, you’ll be able to find the right loan and lending partner for your business — without the hassle. The best part? You can apply within 15 minutes and receive your money in as little as 24 hours.

Final finance tips for savvy small business owners

Figuring out funding for your small business is only one piece of the puzzle. It’s also a good idea to follow these best practices to build a strong foundation for your startup’s success:

Get an EIN

An Employer Identification Number (EIN) is a federal tax identification number used to identify your business. To get one, apply on the IRS website. This number will help your business pay taxes, run payroll, open a business bank account, apply for loans and more.

Open a business bank account

Once you have an EIN, you can open a business bank account. A business checking account helps keep your business and personal finances separate. You’ll use your business checking account to receive payments, send invoices, pay taxes, pay employees and more.

Create a detailed business plan

A business plan is an essential element of starting a business. This document details all the aspects of your business’ strategy and projections, including your forecasted profit. If you intend to apply for a loan, this step is not to be skipped. How you plan to make money and what you estimate for potential profits are crucial considerations for lenders. The more detailed your business plan, the better your chances of securing outside funding.

Ensure a detailed bookkeeping system

Keeping detailed records of your business’ transactions is a must if you want to avoid accounting and tax-related headaches. As you start your business, ensure you have a bookkeeping system that categorizes each transaction. A sound system should also help you keep track of cash flow, monitor your spending and provide you with a profit and loss statement. If bookkeeping just isn’t your thing, you can also look to a certified public accountant (CPA) to guide you through the bookkeeping process.

Person explores small business funding options on laptop.

Ready to work with a partner who knows what it’s like to start a business?

Temperature check: If you started off thinking personal funding was the answer, but now you’re having second thoughts after learning about the risks, don’t panic. We’ve got just the thing.

With Heartland Capital, you can get the funding you need fast, from $5K to $5M. Our capital lending solution is powered by Lendio — that means you get access to the nation’s largest and most trusted loan marketplace for free.

Wondering how it works? You apply in 15 minutes. We help you compare offers and find the best one for your business. No commitments, fees or obligations. It’s really that simple.

Reach out anytime to learn more about how we can help you get funded and unlock growth for your business.

Frequently asked questions (FAQs)

If you decide to start an LLC, there are a few ways you can put personal money into it. Whether using savings, personal loans, credit cards or a home equity line of credit, we go over all your options in detail above. Read back through the guide for more information on how to decide the best way to put personal money into your LLC.

Putting personal money into an LLC is different than putting business funds or business loans into the business because you (as the individual) are liable for the money outside the business. In the case of a personal loan or credit card debt, you are responsible for paying it back regardless of how the business performs.

You can fund your business with whatever amount of personal money you choose. However, you’ll need to report any deposit over $10,000 to the IRS.

When it comes to bank accounts, an individual account should be used for individual expenses, while a business account should be used for business purposes. Maintaining separate accounts for business and personal expenses is key to streamlining bookkeeping.

A personal loan is a type of loan with a set repayment period and consistent monthly payments. It’s a loan you take out as an individual, where your interest rate is based on your personal credit score, income and other factors. A personal loan often carries a higher interest rate and lower borrowing power than a standard business loan.

Yes, you can use personal money to fund an LLC. Check out the guide above to see the different ways you can self-fund your new business.

Yes, putting money from a personal account into a business account is one way you can fund your business.

There are two main ways to put money into your business: 1) You can either loan yourself money or 2) you can list it as equity.

Yes, you can loan money to your business. However, there are a few caveats to doing so, including terms of the loan, repayment and consequences of non-repayment. Speak with a lawyer who can help you make a loan to your business without landing yourself in hot water.

Disclaimer: The information provided in this document does not, and is not intended to constitute legal advice; instead, all information, content, and materials available are for general informational purposes only. Information provided may not constitute the most up-to-date legal or other information, and readers of this information should contact their attorney to obtain advice with respect to any particular legal matter, in the relevant jurisdiction. All liability with respect to actions taken or not taken based on the contents here are hereby expressly disclaimed.

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