So, you’ve got it nailed down: That business idea that’s haunted you (in a good way) for months or even years. It may have taken a while to sort through your thoughts and formulate your ideas but now you’re ready to move forward and share your vision with the world. There’s only one looming question: How will you finance it?
Before you let this question stop you dead in your tracks, allow me to share my experience with you.
When I started my business, I was a student in business school. And, as you can imagine, I wasn’t exactly flush with cash. Yet, the time had come when I needed to move forward and I had to determine how I was going to fund the venture. I knew I needed about $10,000 to play with. In thinking about how to obtain the money, the issue I had was not one of scarce resources and choices. Rather, I needed to make the best decision based upon the multiple choices and directions I could have gone in.
The first option I considered was obtaining a small business loan from a bank. I thought this choice might be the most straightforward way to finance my startup. But, given the market environment in 2009, the banks had very strict lending rules for businesses and in all but a few cases they would only extend loans to businesses that were generating revenue. As a startup, this immediately disqualified me from exercising this option. Next.
I also considered using my credit cards. While I didn’t like the idea of running up credit card debt, it was a viable option I wanted to consider. After all, my credit cards were wide open and provided me with instant access to the cash I needed. The downside was too great, however. The credit card APR was 25%. Additionally, I had to contend with the reality that I would be immediately creating another bill for myself while I was still in school. And not just any bill — if I didn’t pay it, I could ruin my good credit score , and I didn’t want to mess up what I had worked so hard to achieve. I quickly decided against this idea.
Utilizing my savings was the third choice on the table. So, remember what I said about not being flush with cash? It’s true — I wasn’t a mini-Warren Buffet while in school. But, I did have a significant savings. Prior to business school, I had taken full advantage of my employer’s savings plans including matching options and flexible savings accounts. I knew I could use this money, but how much of it did I want to use? Since saving for the future is paramount, I knew I couldn’t treat my savings as a blank check — even for the purpose of furthering my business. I needed to be strategic.