As you grow, you may hear people’s own interpretation of how an entrepreneur should acquire their capital.
One of the most common questions you’ll hear on this is: should you as an entrepreneur borrow money or get an investor from the start?
Entrepreneurs like Mark Cuban for example, have chimed in on this saying you should never borrow money to start a business.
That’s not a 100% correct statement because at some point you may have to borrow money.
Whenever you’re at a point where you need to expand or even as you’re starting out.
That’s what I did myself. I had an investor starting out and it turned out okay for me, so it’s not entirely correct to say that you should never borrow money.
I had an investor that gave me capital, and plenty of other people continue to reach out to investors like him everyday to raise money, so there’s nothing wrong with it.
It’s wrong when you don’t need it and take it because you’re afraid, that’s where I draw the line, especially in business.
Taking on debt when you don’t need to is dangerous, and it’s usually a sign of you’re doing something wrong.
But let’s say you’re in a situation where you take on debt right now.
This could be in the form of investor debt, bank debt, or somebody that wants to invest in your business in return for equity.
If it’s going to accelerate your growth you have to weigh it out, and you do that by comparing if you were to do everything yourself.
For example, let’s say the money you borrow could accelerate you a year in business.
Okay now you’re one year ahead of where you would’ve been.
But if you didn’t borrow the money and waited a year instead, you would eventually get there long term and save yourself some money or equity…
So now you have the choice to take on the debt and save yourself a year or grind it out?.
Is it worth taking on the debt to save just one year’s worth of work? I personally wouldn’t do it, I wouldn’t take on debt for it to save me a year.
But I’d do it to save five or ten years for sure.
Investors are tools for your business, but do you really need a screwdriver for something that can be screwed in at some later point?
Whenever you take on money, you always need to think long term and short term then weigh the differences.
Borrowing someone else’s money is a risk for your business too, you just need to be willing to live with the consequences for what you’re getting in exchange for it.