Can I Start a Business Even Though I Have Personal Debt?

Starting a business requires significant capital. Renting or buying a workspace, hiring professional business lawyers, finding staff and procuring all the necessary licenses and contracts are just the beginning. You then have to produce a product or service, which may require even more "seed money." Many business owners cannot take a salary for months while their businesses get off the ground. Starting a business is very expensive, but not all of that money must come out of your pocket.

Part of being a successful entrepreneur is knowing how to obtain other people's money. A stellar business plan can attract major investors that become shareholders. If you provide a much-needed service, there may be grants available to help defray start-up costs. If all else fails, you may be able to get a high-interest loan, but your own debt may jeopardize your eligibility.

Most businesses were not started because the owner was already rich. Opening a business is attractive because it affords the owner freedom and it can be very lucrative. People with personal debt can start a business as long as they have a source to fund their expenses until the company becomes profitable. Whether someone in debt should start a business is another topic entirely, but it is something every entrepreneur should consider.

Evaluating Your Habits and Risk

Your personal debt is not necessarily an indicator of responsibility, work ethic or any other character trait. Anyone can suddenly find themselves in debt for any number of reasons: you were laid off, you fell ill, the stock market turned on you, etc. More people in recent years have become casualties of uncontrollable economic factors since the Great Depression, and there is still market uncertainty claiming people's livelihoods each day. These factors do not define you, and your debt is not necessarily a personal failing.

Before starting a business, closely evaluate your personal financial history. Are you in debt due to circumstances beyond your control, or did you make a mistake that wiped out your assets? Risk-taking is a necessary trait in any entrepreneur, but that should not be confused with recklessness. When you are dealing with shareholders' money and employees' salaries, you are accountable to other people. If your past habits have frequently lead you to budgetary strain, you may not be a good candidate for starting a business.

You must also determine how severe your personal debt situation is. Are you a few hundred dollars overdue on your credit card, or are you at risk of losing your home to foreclosure? The severity of your situation can help dictate whether you can start a business now or if you should wait to build some capital. Starting a business is stressful, and adding that to the stress of indebtedness can set you up for failure. If opening a business is your last chance to salvage your livelihood, it may be wise to step back and re-evaluate the feasibility of your business venture and your motivations for pursuing it.

Starting businesses with personal debt is not necessarily a barrier to entrepreneurial success. There are less costly alternatives to the classic model of opening a brick-and-mortar location, hiring staff and cutting the ribbon. Try giving yourself time to work out your personal debt while you earn capital on the side. Start with a website that you can manage yourself to gauge interest and even sell product or service; do some informal market research, polish your business plan and start recruiting investors. It may take a little longer, but you will be able to start your business at a full sprint once your personal finances have recovered.

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