hello my name is Gary Shotton and I’m here to be a part of Inspiring Better Business and today we’re going to talk about a subject that’s called “Borrowing Money”. now I make a regular call to East Africa in this case particularly the Congo with a group a peer mentoring group there and they ask this question when and how much money can we borrow so first when can we borrow and then how much well that’s a pretty bold question when you’re just skidding started in business and I realized I need to just talk about this to everyone that wants to listen and give just my opinion maybe you could disagree that’s fine but there’s certain rules that you need to watch for when you’re borrowing money and I’ve learned the hard way in many cases first of all you got to recognize that there’s not one answer that answers this question certainly there’s four different and maybe more but for sure four different phases of business ownership number one you’ve got an investigation stage I mean this is kind of when your business is a hobby I’m talking about starting from scratch on your first business I’m not talking about somebody that’s got a lot of experience and now they’re buying a bigger company I’m talking about getting started and so first you’ve got to investigate I’ve used the example many times about raising chickens well why wouldn’t you raise a couple chickens like starting with a couple eggs and learn how to raise and hatch and grow just two or three or four chickens before you get to the 20 or 30 or 40 chickens that’s called the investigation stage you can call it a business but you’re not gonna make much money at that level in fact it’s more like a hobby you’re gonna spend money and until you make a profit you probably want to call this a hobby because you can spend any amount of money you want on a hobby and not have to justify it but you want to make a profit number two there’s a start-up phase where you’re just getting started we’re gonna focus mostly on that and then number three it’s when you’re operating ok now you’re up and running you’ve been going for a year or two years and you’re making things happen and last but not least is growing to the next level maybe you’ve got like my friend home-ec in Ferrara Uganda that has already 20,000 chickens in last May and June of 2018 bought 10,000 more baby chickens to grow to the next level that’s great well when would you borrow money well in the first – for sure not not in the investigation and not in the startup I know that’s not what you wanted to hear meant necessarily but those are not good times to borrow money and if you’ll use the teachings that we talked about throughout our all of our process of teachings on the website and the encouragement we have we say start really really small so small maybe some people will discredit you as if you really don’t have a business but you’re just getting started and then you’re gonna grow step by step not too fast so if you can keep from borrowing money at those early stages you’re gonna be way better off because see there’s a big problem when you borrow money the big problem is this you have to pay it back or at least you’re expected to pay it back and if you don’t pay it back you’re gonna run your name you’re gonna run your future with the business community in your area and you’re gonna get a reputation that’s not what you want so I recommend in the investigation stage and in the startup stage that you grow slow enough and steady enough that you can cash flow your entire operation without borrowed money now a lot in the United States we would mostly talk about borrowing money from a bank well I know that’s many times almost int and possible in in the developing nations for sure to begin with and so I don’t recommend just borrowing from your mother your mother-in-law your grandma your relatives I mean that is very risky because you want to have friendships beyond this business and the reason banks don’t loan money to startups they’re so risky very few actually take off and would be able to pay back alone so they banks don’t choose to take that risk on a personal basis you need to be very reserved well let’s get to the point of growing and then operating your business let’s get to operating you’ve been in business a couple years maybe three or three two years one year and now you’re ready to do something well first of all there’s some do’s and don’ts about what to what to borrow this for this money I’m not saying don’t borrow money I’m just saying be very wise and be very slow to do that first of all just because you have some bills to pay that is not a good time to borrow money now you might have to do it very very briefly and pay it back and learn your lesson but don’t make that a habit nobody’s gonna want to just pay you bar loan you money just because you have some bills that’s something you’ve got to deal with without borrowed money you might have to pay it off in time you might have to work for these people I don’t know what you’re gonna do but learn that lesson be able to pay your bills and not borrow that money then you really don’t want to borrow money for general operating expenses that means just to pay the lights pay the labor that’s money that has no real put back in the sense of value that’s going to give you a return because you have to have those things and the real things that you would consider borrowing money for is strong assets things like equipment things like raw materials things like the very base things that you’ve got to have and that will especially equipment that you could borrow this piece of equipment or borrow money to purchase of a piece of equipment and that takes you to the next level so you’ve already got a track record you’ve already got a history and now maybe a bank maybe somebody that’s that’s legitimate I’m going to talk about exorbitant interest rates in a minute so you don’t want to do that but you could borrow some money and buy a piece of equipment or another thing that could happen at least in the United States is that we don’t always get paid on the same at the same day we do the work are the same way to deliver the work if you’re at a restaurant usually the person comes in orders a meal eats the meal and then pays the the cashier either as they’re leaving or at the table well in my business it takes our customers the process of time and I have agreed to sometimes 60 days for them to pay me sometimes 45 days to pay I don’t want to go beyond that but there’s a legitimate time to go to the bank or borrow some money to say hey I’ve got this business I’ve already in process I need that time to get my bills paid but get paid for my customers that’s called borrowing against your accounts receivable that’s it probably an okay time to borrow well what’s a fair interest rate I was in a particular country I don’t remember which one and this individual was really strapped there in a tough spot and they revealed that the loans they had and I said well what’s the terms on the loans and they said well one of them is 30 percent interest and I’ve got to pay it back like in 30 days that is a very very very poor loan you’re giving away all of your money just for interest that’s unfair usury is what the Bible would talk in my opinion and somebody’s taking advantage of you to do that and so you’ve got to be very careful that you don’t find yourself in that kind of situation that that’s your own option well something fair would be the going rate of interest around a little higher because you’re you’ve got you’ve got not the security that a bank has but you know when it got here more than six eight ten percent Interest that’s pretty steep that’s just my opinion well let’s give some examples well I started my moving and storage business I’m sitting in a different business now my machine shop but way back in the very beginning when I was starting my first business I first of all did not have a loan from a bank for the first seven years of my business career and I kind of wish that I didn’t borrow money at that time but I had this concept that if I could just get bigger things would be better well that’s not really normally the case I to trim the fat I needed to be more efficient I needed to stay at the size I was but I borrowed some money and boy was it hard to pay it back I became servant to the lender it was really really hard to pay that back and you know you need to have some pretty good experience before you start borrowing money or just a beginner that’s what I talked about earlier in the in the in the investigation and the startup you don’t have the experience to do borrowing money because you just would be too loose with that money you’ve got to have a handle on your accounting I can’t handle on your books and so those are conditions that would be allow you that would allow you to borrow money one thing that’s the overriding factor you need to look at your personal spending habits and you need to be able to say I have control on all of my spinning I don’t buy things by impulse because there’s many times I didn’t buy something because there’s no way I could I had no money well that if you’re had some money and you don’t have a real good handle on your spinning habits there it goes out the window and you’ll spend it on things that are on the edge of foolish it looks good at the time but it’s not what you need to be spending it well there’s a lot covered there borrowing money is risky and paying it back is what is creates the big push or the big problem when you borrow that money I hope this helps you I hope you understand we’re here to help you Inspiring Better Business thank you