Hello readers! Harry here – author of the above title – and I host a daily virtual book reading. This one is interesting because the topic of borrowing was written nearly five years ago by me. Then it was fashionable. As you read these words – would you do it today?
Yes, the “b” word. If you can get a long-gone dot-com entrepreneur to speak with you about how he started out (and not how he flamed out), there is typically a maxed-out credit card somewhere in the equation. You might be an exception to the following point, but to launch yourself as an SMB consultant, there comes a point where you’ll probably have to borrow funds during your formative years. In itself and as explained in upper-level
corporate finance courses, borrowing isn’t a bad thing. Borrowing can be used to provide the working capital you need on that newly landed, enormous consulting contract. I did it myself, borrowing on a credit card to purchase a Macintosh computer that was needed for my first contract as an SMB consultant. It was a lucrative contract that paid on time 30 days later, but I needed the Macintosh in advance. You get the point. And, it’s leverage, which is another financial term that essentially means using other people’s money. That’s called “OPM” in Texas! For non-Texans, that’s OTHER PEOPLE’S MONEY, with capitalization for emphasis!
There exist various forms of borrowing, ranging from commercial lines of credit at a bank to pawn shops to loan sharks. Here are the most common forms of borrowing I’ve seen used by fledgling SMB consultants:
· Home equity loan — This debt vehicle is reasonable both in its costs and in your ability to obtain it. You should obtain your funds via this avenue prior to leaving your day job and becoming a full-fledged SMB consultant. It’s much easier to get a home equity loan while gainfully employed. In today’s environment, a home equity loan is desirable because of the historically low interest rates tied to this form of borrowing. But at any time, under any economic conditions, home equity loans allow you to FEEL that you’re investing directly in your SMB consulting business. These strong feelings come from having drawn “foundation” money, such as home equity.
· Credit cards — More, but not all, of us can resist the enticing preapproved credit card offers that seemingly multiply in our mailboxes. Granted, this is a high-cost form of debt, but it’s so darn easy to acquire. And as stated earlier, credit cards are used at some point by almost every small business person.
· Friends, family, and in-laws — Major “ouch” territory, but it’s been done before. This form of debt carries the high cost of tension and hurt feelings when things don’t go exactly as expected.
Harry Brelsford, CEO at smb nation www.smbnation.com
Microsoft Small Business Specialist SBSC, MBA, MCSE, MCT, MCP, CNE, CLSE, CNP
PS – did u know I host a technology conference in the New York City area each spring? Save the date for March 6-8, 2009 and watch “voice meet data” in the SMB space!
PPS – my SBS 2008 book will be out in mid-November 2008!
PPPS – my Microsoft Response Point Primer book is here NOW!