The Great Leap Of Debt
When talking about business hopes and dreams, people have actually told me that they needed thousands of pounds to start their business. Some had considered taking out business loans.
They were fully aboard the hype-train that is the GREAT LEAP OF DEBT.
Before I get ahead of myself, let me issue fair warning: I’m not a business or financial adviser. You should speak to a professional if you require advice. Everything in this post, and on this blog, is information based on my own personal experience.
I would never take out a loan to fund a start-up, and here’s why…
Business Loans: The Great Leap Of Debt
When I think about business loans, I think about the implications it could have on my loved ones, if they were to ever take one out. I hate the idea of any of them launching themselves into debt to fund a new business.
I’m frugality minded, as is evident from the writings on this blog. But there’s more to it than that. Debt can be debilitating for a low or middle earner.
It is compound interest working against you.
Further, debt taken out against fiction is high-risk to say the least. And your business idea for now, is not an asset, it is fiction that only exists within your mind.
Sometimes people get caught up in big aspirational talk – “I need this office space…” “I’ll need to hire him/her…” “We’ll need 1 year of stock…”.
This, all before 1 single week of a trial has taken place, or a single product has been sold.
The Downside Of A Business Loan
The downside of a business loan is the same as any loan: You have to pay it back.
While you’re spending money left, right, and centre, your loan is compounding (or is frozen and waiting to compound at best).
I suspect most people who start a business are also working a normal job. A key question I would be asking before taking out a loan is, can I afford to pay back the loan, and beat the interest payments, on my wage alone?
Also, how many months/years will it take to pay back the loan if my business fails?
The long and short of a business loan is, if the business doesn’t work out, you’ll likely spend years paying that money back.
Even if a business does relatively well, it may not meet the costs of the loan.
The debt may just add unnecessary pressure, as you work to build a business.
Lastly, the downside of a business loan is, most businesses fail.
Is There Another Option?
Instead of paying off a loan after-the-fact, we saved the money before hand.
We had less money to play with, and thought a lot more about how we would spend it. It also meant it took longer to grow the business.
We minimised business expenses so that the overall cost was affordable.
But there were a number of attempts before the success.
And when those businesses failed, we only lost our investment, and time.
We didn’t owe the bank anything.
Business Loans: The Great Leap Of Debt
Any debt is bad news in my view. It’s not that I can’t see the big picture, or that I limit my possibilities in the ‘Biz’ world.
I just don’t buy the hype. THE GREAT LEAP OF DEBT is good marketing. People are convinced that they need to push their finances off a cliff edge, in the hope that their new business will act as a parachute and save them. It simply does not compute, for me.
There are very few business ideas that require real financing, and those businesses are rarely started by your average earner.
It’s about understanding failure: If you fund low cost start-ups yourself, you can keep trying for life. If you take out one big business loan and it fails, you’re less likely to be able to try again.
It’s not for me to tell you what to do. I write this with my friends and family in mind.
This is my opinion on the matter.
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