If as we have so often read and heard in the recent past, “Time is money,” then borrowing money is the same as borrowing time. This can be true and should help you guide yourself as to when to borrow money and when you should not do so.
Money is a useful tool for developing business. I have never met an entrepreneur that didn’t have a use for more of it than they had at the moment. That said, inappropriate borrowing can cause a whole lot of trouble for the unwary.
Most businesses that are started these days are funded by a combination of savings and credit card debt. Credit Cards are not a good way to finance your new business. They may be the only way you have available but they are still a bad option.
Let’s talk about a fellow named Randy for a bit and see if the point does not become clearer. Randy had a big appetite for success. He had sold a lot of high end computer systems in his sales job at IBM. His income was in the six figure range and not the low six figure range.
When the PC (Personal Computer, not Politically Correct) revolution came along he saw an opportunity that could not be resisted. He left IBM with his reputation and bridges all intact in case he had to return to the old market.
Randy started his own Personal Computer sales organization. At first he sold only IBM PCs but he soon saw the way the market was developing would require him to do more than that. He sold PCs in large numbers and needed a large credit line to finance his purchases from all of his potential vendors.
IBM offered a credit facility that supported his purchases for thirty days. After that he needed to pay off that line. His other vendors gave him the same terms but for smaller amounts.
The problem Randy had was the period beyond thirty days until his clients paid for the equipment that they received. That could be as long as sixty days more. He was caught in a classic credit crunch.
Randy went to the bank where his accounts were held and asked them if they could offer him a line of credit. He had several large accounts receivable to offer as collateral. The bank officer shrugged and told him that his business was too new to qualify for a credit line.
Randy was pretty blunt at this point. He said that the bank was useless to him and that he was going to look for a more accommodating lender. The bank VP only smiled and said, Good Luck” Then he offered Randy a large balance credit card to help with his short term cash flow needs.
Randy perked up and took the bait. He filled out the application. Then he went home and collected every credit card application that he had received in the mail that year. He assembled eight of them, filled them all out and waited a short time to get all of his new cards.
When he was done he had assembled five hundred thousand dollars in credit cards. A large sum but not unmanageable if he was careful. His cash flow was running twenty five days behind his payment requirements at that point.
In plain English he needed to borrow money for twenty five days and then he would be able to pay it back from his incoming cash flow. He was borrowing time, not money.
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