Should I Borrow Money to Start My Business?

by Calvin Cox on September 24, 2012

startup business image

Confession: One of my startup businesses cost was over $30,000 mostly paid for by credit cards.

There are many types of startups. This post is about the one where the young entrepreneur puts all his startup cost on his credit card or takes out a small business loan to start a business without a proven business model.

Now I know, many of you will disagree with me but I owe it to those with big dreams and small pockets, to those who aspire to be great but may not have the resources to guide them. I owe it to young entrepreneurs like myself, who had to learn the hard way. The hard way being, so strapped for cash that your credit cards are your only savior.

Simply put, without a proven business model you have no business getting into any kind of debt whatsoever. As a young entrepreneur, your resources should not be used up because you have a hunch, or an idea of the week. We all have ideas of the week. The question is — is that idea worth becoming a slave to creditors? Most times than not, the answer is NO.

Keep your finances in check, don’t start borrowing all sorts of money with hopes that your business will take off. Take your time and do the research. Find out all you can about the industry you’re entering and how your product or service will add to or change the industry. As an entrepreneur on a shoestring budget, it is not wise to enter into a business venture as an And One. Meaning, that you don’t want to be another one offering a similar product and left to compete on price alone. You must have something that will differentiate you from your competition. Or, find something in that oversaturated industry that you can specialize in and specialize the heck out of it.

The prudent way to approach a small business is to create a detailed plan and save up for your business. That way you can pay for your business the old fashioned way, with cold hard CASH. However, if you can’t wait to save and would like to do it now… DIY is also a great option. Instead of paying someone to do it for you…Do It Yourself.

Take the time to learn the skills needed to run your business or at least enough to create a prototype or get your company into beta, so your initial customers can give you the necessary feedback to improve your prototype or business model. You can also call in favors from friends or barter expertise. For example, maybe you’re great at social media marketing but your friend is a talented graphic designer who can help design your logo and branding materials. If you get creative in starting your business, you can avoid getting into debt. You are an entrepreneur after all.

The only time I would even think it possible to borrow is when you’ve done the above steps and your business seems to be moving in the right direction ( towards turning a profit ) and the money is to simply get a larger production or improve your process or to design a better website. A great book on finance is The Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey. This book is mostly about personal finance but will clearly drive home the importances of the CASH ONLY concept.

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