Stay away from debt
January 12, 2012 No CommentsThe most sensible tip for entrepreneurs, housewives, students and just about everybody else goes thus: Stay away from debt.
While not always practical – how many of us can afford to buy houses for cash or have huge nest eggs with which to start a business? – the next best thing may be to minimize borrowings as much as possible.
On top of the list should be the use of credit cards. Already excluded should be getting any kind of loan, whether for business or personal use, from loan sharks. Getting such loans is never, never a smart thing, and is potentially dangerous. Those stories you might have heard about the collectors of overdue accounts? They’re all true. Operating a business can be difficult when one is recovering from a broken arm or leg.
As for credit cards, some are worse than others, particularly concerning overdue payments. Interest and other penalty charges can pile up before you know it.
When used for business, credit cards can be a trap that becomes impossible to get out of. Many have found out the hard way that borrowing money to pay their debts is a sure road to ruin.
Loans from friends and relatives can be a little tricky. While such loans can come with little or even no interest, relations between lender and borrower can be strained if there is no clear understanding as to the loan’s parameters.
Borrowing against your insurance may seem to be the best option, but make sure you study the fine print. Be sure that your protection is not diminished in the event your payments are delayed.
As for banks, it will depend on such factors as your personal relationship with the financial institution. Rightly or wrongly, banks have earned the reputation of being heartless, ready and willing to foreclose without regard to the reason payments are delayed.
The smaller banks may be the better bet because there is a more personal interaction between the bank and the borrower. In other words, they have what some of the biggies seem to have lost – heart.
The great thing about online businesses is that their start up cost is much smaller than brick and mortar stores. An ordinary worker can set up an online store with a small investment. Despite this, there are still entrepreneurs who insist on starting an online business with borrowed funds.
Big mistake.
They may be calculated risks, but setting up a business is not that different from gambling at a casino. The advice that professional gamblers usually give to neophytes and beginners is to spend only what they call disposable income. This means the money that they are willing to lose with no serious harm to their pockets. The pros add that people should gamble in casinos for the fun of it. Chances are, they will lose. If they win, they should consider it gravy.
The difference with business? The aim is to win, to show a profit. But if a business were to lose, the loss should be affordable to the businessman.
Was it Shakespeare who said “neither a borrower or a lender be?” Whoever said it was one wise cookie.
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