December 6, 2012, 6:10 am

Is It Okay to Borrow Money to Start a Business?

by: MD    Category: Alternative Income
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“I wish I could start my own business. I just don’t have the funding for it. I need more money. You need money to make money”

Ugh. Get a life. I’ve heard this way too many times. I can’t stand it. For some reason I always end up in random debates after a few drinks. I try to avoid them, but I’m too honest for my own good sometimes. I always lose my mind when I hear a buddy try to pass off so-called “conventional wisdom” as a matter of fact. I believe that in life you need to challenge axioms and learn to think differently. You can’t just accept everything at face value.

Do you even need money to start a business? Many years ago when you took a business course in high school, you were reminded that you need money to make money. You were told that the rich get richer and if you don’t have any resources, then you’re pretty much screwed I’m not too sure this advice holds up still.

The web has opened up possibilities that were unfathomable many years ago. Folks are making money doing some pretty random things these days. But that’s a different story for a different day.

Is it okay to borrow money to start a business? Do you have to wait to save up money before you start working for yourself?

No. Absolutely not.

For the last few years I’ve been writing about how you don’t need money to make money. Then I read the $100 Startup by Chris Guillebeau and this confirmed what I had been thinking for a long time. I was curious to learn more, so I reached out to Chris and he answered a few questions for me on how to start a business for only $100.

This got me even me invigorated about the topic of starting a business. Now don’t get me wrong. Not every single person out there has to start a blog or become a famous blogger to make money running a business. There are many other options.

Back to the original point…

Why is money no longer a requirement to starting a successful business?

Many ideas require time/effort over money.

While money is always important, most great businesses will start with time and effort. If you don’t have the effort and willingness to work hard at something, it will never work out. If you’re not willing to devote the time to your goals, you’re going to keep on getting the same results. Effort is often priceless.

Yes, you can argue that money buys time. But when you have no money, you should at least have time. With time and effort, you can get anything done.

You just need to start right now.

When you sit down to think about it, you’ll always come up with plenty of excuses. Anything scary or worth doing comes with excuses and stories. We’ve all used excused at some point. I can recall some of my excuses for not pulling the trigger with the launch of Studenomics:

  • I’m too young to start a business.
  • I need money to make money.
  • I don’t want to get distracted because I won’t finish my studies.
  • I don’t have time.

Then one Friday evening I was bored and finally launched Studenomics. All of the excuses went out the window. Why? Because I really wanted it. If you want something bad enough you’ll work for it. Starting right now and learning on thee jobs always beats waiting until you magically find the finances.

This then leads to the next point…

You’ll never have enough money.

“When in doubt, raise money from your customers by selling them something they truly need–your product.” — Seth Godin

That’s right. You can never have enough money to start a business or grow a business. There will always be new expenses and things that you want to purchase. The reality is that you have to prioritize as an entrepreneur. You can’t have it all. You need enough to get by and turn your business profitable. You’ll always need more money. There’s always more to buy. This is why you’ll never have enough money to have everything that you want. You just have to deal with it.

Now don’t get me wrong, I’m not against borrowing money to grow a business. When you’re ready to take your business to the next level (increased marketing, more staff, etc.) it makes complete sense to invest money into the growth. What I’m saying is that you don’t have to borrow money to start a business or to get any real traction. I want you to stop using money as an excuse.

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As soon as you have an idea you can start working on a business, but depending on what type of business you are starting you will need money sooner or later, usually sooner. Once again depending on the type of business depends on how much you need, to start blogging requires a few hundred bucks for domain names, hosting and other misc. costs, but to start a dog grooming business requires more capital as you can’t groom dogs without the proper equipment and licenses and a suitable location even if it is a room in your home, or a van you own.

Many businesses with low risk and low startup costs can be self-funded, but depending on the scope of your business you might need outside sources of funding whether it is by selling equity or debt, raising capital is a lot of work in and of itself, many entrepreneurs use their credit cards to fund their business ventures.

I am a huge fan of using borrowed funds for businesses, but borrowed against the businesses credit and cash flow, why risk your own capital when you can borrow money for your venture.
Check out OnDeckCapital it is a fairly new lending platform for businesses based on cash flows rather than credit.

Great post Mike. In some ways having no money to start with puts new entrepreneurs at a clear advantage because it forces them to be creative and do things cost effectively right from the start. Thats how I started 10 years ago. Quit my job and just started. Best thing I ever did with my career. “Swim or Swim” is my philosophy.

I’ve never borrowed to start/build a business b/c it’s so cheap to do so nowadays.

All about SWEAT EQUITY baby!

Grea post, Mike. I haven’t heard of too many entrepreneurs starting out with money. Some can’t even get a business loan. Most have to enlist angels/investors. Others begin with what they can and gradually build on it.

It’s not easy to have your own business and to be successful. But, then again, there those who have the simplicity idea and “get lucky.”

In my recent jump, I didn’t need to borrow any money but I did “borrow” time by making sure I had enough savings before hand to survive the jump. It was mainly about time & effort to get things started.

I like the idea of diving into my own business, but in reality without the financial backing to do it, its really not possible! I am guilty though of making excuses to not take the plunge, the best probably is one you have listed above, ‘I am too young to do it’.

I guess there is no excuse really!

Borrow Money to Start a Business may be right and wrong as well. It depends on condition. If you have some saved money and need just few thousands to start your own business, in this case it may be right. Even starting a business based on complete borrowing money may be wrong decision.

Some days ago, one investor asked me. Should I take loan to invest in forex or stock market? I said “NO”

What do you think about it?

Well, you’re braver and better with money than most. For a lot of people it wouldn’t be smart to start a business unless it was online without proper funding because they just don’t know what it takes to be successful. However I just read your first leverage post and that makes it clearer on how to do just that when going to start your own company or business. I also hate when people use general knowledge one-liners like that though.

Depends on why you’re borrowing money. I think you’re correct, if this is a service business, then you shouldn’t borrow money. In fact you need to learn how to operate on the razor edge of no-money. But someimes borrowing money makes sense.

Years ago we had a bookstore for actuaries and I needed large amounts of inventory. We borrowed for the inventory. Having stock meant we made sales others couldn’t. And there was no way around having large volumes of inventory – it was very seasonal; we needed a boatload of inventory then we sold it all in a few weeks. It took time to get more inventory in, so we either borrowed to have it, or remained uncompetitive.