5 Things To Remember Before Getting Into Debt

It is not breaking news that all businesses require money to get started. Unfortunately acquiring start up capital is not easy and sometimes the only option is to resort to credit.

Certainly, there are many options for securing capital, but all of them come with potential down sides. Before getting into debt however, there are a few things to bear in mind;

 1. Consider your other options.

Don’t make going into personal debt your first choice or first priority. There are plenty of other safer, more reliable methods of getting capital for your business. If you’re making a tangible product, consider crowdfunding, and if not, consider seeking funding from other investors; and at least try to get a business loan. Getting into credit should be your very last option.

2. Eliminate your existing debt — as much as possible.

Accumulating debt on top of what you might already owe is a bad idea. Your business probably won’t turn a profit during its first few months — or even years — and in that time, compound interest could leave you with far more debt than what you started with. It is in your best interest to eliminate your existing debt as much as possible before jumping into a business that will increase your debt even further.

3. Know what you’re getting into.

Getting a personal loan means you are going to be personally liable for paying it off. But when your business fails, you’ll still owe whatever money you originally withdrew from the bank. Therefore take into consideration your business’s true chances of success. It’s tempting to believe that your idea is genius and will succeed but even good-on-paper businesses can fail in real life. Your business may not be as much of a “sure thing” as you think.

4. Get the best interest rates and terms.

Take your time shopping around for different loans and options for securing your new credit. Talk to different lenders, and see if you can negotiate a better deal. Obviously, the aim is to find the lowest rate you can. Securing the loan with a personal asset may help you get even better interest rates and conditions, but it’s also going to make that asset liable for repossession, so plan accordingly.

5. Have a back-up plan.

You need to understand that your business could fail, leaving you personally accountable for your new debts. If that happens, you need to be prepared. There are many options here, but you need to plan them out before you take the next step. Stories of entrepreneurs accumulating debt and worrying about their personal finances are all too common. So, try not to get into personal debt unless you know what you’re doing and are prepared for the potential consequences.