Two years back, i made a gross mistake of borrowing money to start a business!! Let me save someone today! DONT! Don't borrow money that accrues interest to start a business. Unless you intend to pay the loan with your salary. If you must borrow, borrow to expand your business venture. Businesses take long to grow or to be self-sustaining. Whereas loans should be paid consistently and immediately after borrowing with very short grace periods. Don't make the mistake i did. Be smart.
I have seen many cases like this in my area as many people have their own business. Ones my dad wanted to start his own food business but got adviced to save first then start it. He saved for a couple of years and finally got to make his business. Too bad the business didn't go to well so he stopped but at least he got back what he had invested and a bit more.
There is always a risk when starting a business. If the business venture fails, you'll lose the money you've invested and still have a loan and interest to pay. On the other hand, if the business succeeds, you've got yourself a cash machine that you can earn from to pay your creditor/s. As much as possible, you should use your own funds to start a business. This is specially true if your money is just sitting in a low interest bank account. I took a risk with a business and borrowed money from my credit card provider, Citibank. It was a low interest loan that the bank credited to my bank account in less than 48 hours. The business is doing well and I'm almost done with my payment. We faced some hard times when the utility vehicle had to have major repairs along with battery replacement but I had my salary as a backup in such cases. Before deciding to take out the loan to buy the vehicle, I made sure that I can pay it off with my salary in case it didn't hit its earning target.
This is entirely true. My great grandfather made the same mistake by borrowing to start a business because his former business had gone downhill. He never recovered from it and spent the rest of his life trying to pay for it, in which his sons and daughters did instead. In his deathbed, I remember him telling the others his last advice of which is to "never loan money, it will be the cause of your despair" and I still heed his words until now.
@arachnophobik Very sad. And very true. But what is the alternative to loans? How else can one raise money for his/her business. Loans are the easiest one can think of in a short while. But it comes with myriad problems.
I think a lot of people turn to a loan to fund something they can't afford. I didn't borrow to start a business but I made some big mistakes with car loans. I should have known better because I get bored with my cars very quickly and wanted to be rid of them long before the loan was paid off. I then took out a small remortgage to pay them off and if I hadn't done that my mortgage would be paid off by now. Sometimes borrowing money seems a good idea at the time but I have learned it is better to save and have the money up front if at all possible.
