Notes on borrowing to start a small business

Stupid people say “It takes money to make money!” This is actually an excuse poor people and spiritually poor people make for not trying to launch their own business.

Smart people are always trying to make money by using as little money as possible. In fact, ROI or ROC is a measure of how much money the business makes versus how much was invested. It’s the gold standard for business valuation as far as I’m concerned. All other measures are proxies for these.

If you are looking to start a business start it with as little money as possible. Again, stupid people are thinking I’m advising you to be “under-capitalized.” I’m not. Start the business with as little as possible, paring down the offering to match the meager funding you are willing to risk.

Risk your cash. You don’t need a small business loan. You don’t need an investor. Figure out how much you have, how much you can risk. Figure out what business offering you can fund with your small resources and start there. Do not buy new equipment to compete with established players. Buy their used equipment and compete against them with stuff you paid dimes on dollars for.

Go in under equipped. You are starting out. You don’t get to have it all. In fact, not having it all is the competitive advantage for the new business. This is why margins are always higher for smaller operators. They skimp. They are lean. Don’t give this advantage away.

Don’t borrow money. One of the most important things about money that no one understands is that quantity has a quality all of its own. The larger the quantity of money, the more skill you need to handle it. If you did I not earn the money and accumulate it on your own, you almost certainly will not have the skills necessary to keep it and grow it. Charlie Munger, robber baron, says “If you don’t borrow money, you can’t go broke.” He’s right. Another secret is, “if you don’t need to borrow money, you probably wouldn’t go broke if you did.” Don’t get greedy. Don’t borrow the d*****ble money. Start where you are. Learn when the sums are small. Grow the sums on your own. Be careful. Go slow. Slow is plenty fast.

After we’ve learned some lessons and gotten some customers, sometimes we have to borrow a little. I repeat, AFTER we have some clients. AFTER we rented equipment to finish our first few jobs. AFTER we have proven we can make it. After we know what the pricing should be. After we know what the costs are. After we know what a good customer and a bad customer looks like. When you get to this point, borrow through conventional channels. Automobile and equipment dealers provide financing. Borrow money with specific equipment as the collateral. A truck loan. A loan on THAT machine tool. You’ll have to sign a personal guarantee. This is far preferable to dealing with the c********rs at the SBA. The SBA is a waste of time and has a horrible success rate with the small businesses they “support.” Go look it up. Most SBA businesses fail.

Which brings me to the next bit. In order to avoid going to the SBA or investor tit, DON’T GET IN DEBT AT HOME. If you have a mortgage (which is probably necessary in current year), a truck loan, a car loan, a loan on your lawn tractor, credit card debt, student loan debt, etc., you have put yourself in a position to be a wage slave forever. You don’t have enough available credit to buy a big ticket item your business may need at some point.

If you drive old cars, scrimp and save, buy a used tractor, etc., and it’s time to borrow $80k on a used excavator, you’ll be able to do it at low rates on your signature guarantee. If you are levered to the gills like the Jones’ you’ll just have to keep that job so you can meet all your installments.

If you are in big debt and HAVE to keep that job, when they want you to take the eleventieth booster, (which will be necessary because the first teentieth boosters destroyed everyone’s immune systems and now everyone is sick constantly) you’ll have to either be homeless or take one more booster, just one more. There’s no escape for you.

Debt means slavery, in more ways than one.

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