Repayment terms can be as lenient as the business owner chooses. The obvious limitations are the extent of available personal funds and the willingness to put them at risk in a business venture. Business owners using personal funds to finance their business must be careful not to overextend themselves. For example, using a home equity line of credit provides relatively cheap financing, but it also places the borrower's home at risk in the event of default. Also, by law certain retirement funds cannot be pledged as collateral on a loan.
Personal funds play a significant role in seeking other forms of financing.
Most commercial lenders do not lend money to a small or medium business unless the owners of that business contribute personal funds to the venture. For example, when banks lend to new businesses, they generally require 30-40 percent of the total investment to be contributed by the loan applicant. Other Informal Sources of Financing Family, friends, churches, and community organizations are other informal sources of small business financing. As with personal funds, the amount of available funds is limited from these sources, and there is the added drawback that personal friendships and community ties might also be placed at risk in the event of default. Equity Financing Small business investment companies and venture capital organizations can also help with starting or expanding a business.