When I launched my cloud bookkeeping business three years ago, the first thing I did was write up a business plan with the hopes of securing a loan. Clearly I kinda dig numbers and spent a lot of time figuring out how much I actually needed without going over board. I came up with a modest figure of $5,000 and immediately started researching who was going to fund my next big idea.
Looking back on it, there were some key questions that I should have asked myself before taking on this debt.
If you're thinking about getting a loan, or whipping out your credit card, to fund your new business, definitely keep on reading!
Whether or not to use debt to fund your business is a big decision, especially if you feel like you can't get started because you don't have the money to do so.
I found a program that funded young entrepreneurs and after a few months of preparation, I received my $5,000. Which was awesome! Not only to receive the money, but what I learned a lot about the process of building a business too. Pitching my business to bankers made me take a step back and reassess my goals for my business. And how I was going to achieve them.
But, taking on debt has some drawbacks as well.
Some of the Pros
- My business plan was critiqued several times by different professionals and it forced me to do more research.
- I had to present my plan to a board which taught me how to effectively communicate my service.
- I met a great group of people who have served as mentors to me, became clients or referred clients to me.
Some of the Cons
- I started my company in debt.
- I didn't learn how to bootstrap my company and find creative ways to do things for free.
- Did I mention I started my company in debt? In other words, with every dollar I made, a portion of that had to be paid back.
While there are definitely great benefits to getting a loan, it's not for everyone. And my advice to you, if you're thinking about getting a loan, is to think about a few things before asking for money.
If you're thinking about racking up some debt to fund your dream, ask yourself these three questions before you run out and get a loan.
- Do you have a clear plan for the money?
- Have you exhausted every other free option?
- Have you made your first dollar doing this new idea?
If you answer "No" to any of these questions, take some time and wait before you start looking for funding. Once you can answer "Yes" to all three questions, and you need funding to keep your dream alive then go for it!
And now I'd love to hear from you! Are you thinking about using a loan for your business? Or if you have received a loan for your business, what is your advice to others?
Click here to recieve more weekly business tips from Danetha Doe. Connect with Danetha on Twitter, @danethadoe.