5 days ago
How To Start A Business While Having Personal Debt In 2025
How To Start A Business While Having Personal Debt In 2025
Americans are still betting on themselves in 2025, starting thousands of new businesses even as personal debt remains a heavy burden. According to the U.S. Census Bureau, more than 28,000 new business applications filed in April 2025 are expected to evolve into employer businesses (those with payroll tax obligations) within the following year.
However, for many, this leap into entrepreneurship occurs while juggling credit card balances, student loans, or mortgage payments. In fact, a growing share is funding their ventures with personal debt. According to the 2024 Bank of America Small Business Owner Report, 28% of small business owners plan to fund their businesses using personal credit cards. This may be an alternative funding method, but one that carries a high financial risk.
For instance, in the excitement of a promising idea, a new entrepreneur could launch an online shop (buying a domain, paying for web design, and hiring a photographer) all on her personal credit card. She might hope to hit the ground running and generate her first sales within a month. However, if delays arise and early revenue falls short, she may struggle to make minimum payments, potentially damaging her credit just as she begins seeking business financing.
While entrepreneurial spirit remains strong, many are taking financial risks without a safety net. Can you realistically start a business while still carrying personal debt? The answer is yes, but it requires financial awareness, strategic planning, and intentional execution. Here are five expert-backed steps to help you build a business even if you're still paying off personal debt.
Before you can map a path forward, you need to understand exactly where you stand. 'The first financial step is to perform a comprehensive review of personal finances and the business idea,' says Chris Heerlein, CEO of REAP Financial. 'You should review all current debt obligations, monthly income, and your monthly living costs.' This involves identifying your debt-to-income ratio, understanding and eliminating unnecessary spending, and determining whether you can safely allocate funds toward your business idea without jeopardizing essential financial obligations.
Starting a business often requires a lifestyle shift and a reorganization of your financial priorities. When you are already managing personal debt (especially if it is high-interest or weighing down your cash flow), launching a business without a financial plan can quickly backfire. A business built without financial clarity risks becomes another liability instead of a source of freedom.
Understanding the personal systems that support your entrepreneurial goals is just as critical as setting up business systems. This is where financial strategy becomes your foundation and not just another task in your business.
Blending personal and business money may be the reality for new entrepreneurs. Still, while it can seem harmless in the early days, it is one of the fastest ways to create confusion, tax challenges, and long-term credit damage.
'You will want to have a plan of action to reduce your higher interest rate debt first,' says Heerlein, CEO of REAP Financial. 'It will also be important to have allocated your emergency fund for personal use and calendar in seed money for the business.' And I agree. Most of the entrepreneurs I work with have a mix of personal and business accounts and expenses that prevent them from separating, analyzing, and strategizing around their financial priorities.
This kind of separation can begin by identifying the purpose of each purchase. If an expense benefits personal life (like groceries, streaming services, or household items), it should be logged and paid from a personal budget. Business-related expenses such as marketing, software, or inventory belong in a separate business budget.
For example, a founder using the same credit card for both business supplies and weekend shopping might believe it is efficient, but over time, it creates confusion. Even when the payment method is shared, the budgets must remain distinct. That means maintaining two separate spending plans, each with its own starting balance, cash flow tracking, expense categories, and short-term financial goals.
When personal living costs and debt obligations are prioritized first, whatever remains can be allocated for business growth. This separation helps clarify how much the business can truly afford to spend, and what needs to wait.
Developing a Minimum Viable Product (MVP) is one of the most viable ways to balance launching a business with managing personal debt. While the MVP concept is often associated with tech startups or venture-backed companies, it is just as critical, if not more so, for founders who are self-funded or seeking to minimize financial risk.
Launching lean is often a smarter path when personal debt is already part of your financial picture. It helps you validate your idea without making a big investment upfront. 'You may also experiment and pursue a strategy to set reasonable goals for the business and start very small with no major expense commitments,' says Heerlein. 'Thus, you will not burn too much cash and can shift your mindset and business approach as your financial position gets better.'
This is the mindset behind an MVP: the simplest and most cost-effective version of your offering for a specific problem is the one you should go with to find your first funding, sales, or proof of concept. Before spending thousands on branding or infrastructure, you may ask: Can I offer a service version of my product? Can I sell through an existing marketplace? Can I build demand locally through referrals or small events? Some of the people who now have six-figure side hustles have achieved this with great results to show for it.
Many entrepreneurs start by wanting to grow quickly, and so they allocate their expenses with that goal in mind. But when you are managing personal debt, that mindset must be balanced with intentional prioritization, covering your financial essentials while giving your business room to grow.
'In any case, you should maintain personal living expenses first before paying down debts,' says Heerlein. 'This ensures you don't adversely impact your credit status and incur penalty fees.' That means making sure your basics, like housing, food, transportation, and ideally more than just the minimum payments on your debt, are covered before directing funds into your business. Once those essentials are accounted for, you can begin to allocate cash toward startup costs.
However, your focus should remain on preserving short-term solvency, ensuring you have enough liquidity to meet near-term obligations without relying on credit cards or triggering new financial stress. Whether you are paying yourself a small founder's draw or bootstrapping operations, the goal is to maintain access to working capital while avoiding premature cash depletion even if this may mean temporarily scaling back on discretionary spending in both your personal life and inside your business.
When capital is limited, it can be tempting to rely on personal credit cards or take out high-interest personal loans to fund your business. But doing so often compounds your debt burden, making it harder to gain financial traction.
'At all costs, avoid high-interest personal loans and do not pay personal credit card debts with business expenses,' warns Heerlein. 'It creates more personal financial burden and will not give you further leverage in your business.' If additional funding is necessary, the goal is not just to access capital, but to access it strategically. Look for low-interest, flexible financing options like SBA microloans, community lenders, or CDFIs that support early-stage entrepreneurs, particularly those from underserved communities.
Other funding alternatives may also be viable. For example, grants can serve as a strong source of non-dilutive capital, particularly for mission-aligned businesses or founders from underrepresented groups. Additionally, crowdfunding could be a feasible path if you offer a tangible product with clear value. For founders in high-growth industries, equity-based funding should be considered; however, proceed with caution. Giving up ownership too early or under pressure may limit your control in the future.
The bottom line is that personal debt remains a significant aspect of the financial equation for many. To succeed and avoid harming your personal financial health, a clear structure and commitment to intentional financial actions are essential. From assessing your financial situation to choosing funding wisely, these five steps provide a roadmap for those looking to start a new business while managing personal debt.
