One thing that can sometimes hold entrepreneurs and business owners back is that they’re worried about taking financial risks. For instance, someone may be considering taking out a loan to fund the development of a product. They believe there is a market for it and that it will be profitable. But, at the same time, they’re worried that they won’t be able to pay off the loans if the company fails.
Specifically, some business owners are worried about their personal assets and finances. They’re not as concerned about the company, although they do hope that the business is successful. Their main concern, though, is that financial trouble at the company may mean they lose their retirement accounts, their personal home, and other assets that they own.
For example, if the products don’t sell and the business has to declare bankruptcy, is the business owner then going to have to pay the remainder of the loans out of their personal estate? Do they need to liquidate their personal assets to cover that debt?
Using an LLC
This can happen in some cases, but you can choose a business structure to give you more protection. By creating an LLC, or limited liability company, you create a business entity that can take loans out on its own. If that business fails, only the LLC is responsible for the debt, so your personal assets are safe.
One mistake that people make is just taking out loans in their own name to get the business off the ground, without using any sort of business structure. But by selecting the right structure in advance, you can give yourself more protection and create opportunities you may not have had on your own. Make sure you know what legal steps to take.