Make money online
Start low or get a 200K loan?
Some days ago I read an article about people who start a web business and might want to get investors interested in their project. The number used there was 200,000 USD (we can take less or more, in the end we talk about money we don’t have and need others to give it). For a new web business this capital is important: you can develop faster and, with a good business plan, you can also re-pay and then develop “solo”.
My question to myself and now to you (since you stumbled across my article) would be: “Would I really want to get in such a debt to start my business?”
As I always like to have “lists” of pros and cons, I’ll try to solve this the same way and invite you to also add up if you have more ideas.
Starting with a 200K USD investment (bank loan or people who help out with the money)
PROS:
- I have the money needed to kickstart the business. I can afford promotion, a nice office, a good looking car, employees
- If I know how to make the business work this initial capital can build up nicely and I could get a very good profit. I can then repay any debt and then be free.
- The big loan might be an incentive for me to work more so that I make the business grow fast.
CONS:
- I am in debt. Seriously in debt. If I fail, I lose everything, have to work for a lifetime to cover my loan, sell my house, car etc. Sleeping in the first months at least would be hard, with all this in mind
- Some of the investors (if it’s not a bank loan) would like to get their nose in my business. They’d claim I let them decide too since they pay for this. Sure, there might be investors who wouldn’t bother me, but some would like to run my business for me. Maybe I can’t live with this.
- I might be tempted to waste money on all kinds of useless things since I know I have such a good capital to start with.
Starting on my own very small savings and growing at my own pace.
PROS:
- I am my own boss since I’m the only investor. No one tells me what to do, there’s no interest to be paid;
- If I monitor my expenses and work hard I can have a profit really fast. It’s small, but I can develop from there and in some time be able to afford growing my business faster.
- I really sleep better knowing I am not in danger of losing my home for instance for not being able to pay my debt.
CONS:
- The fact I have a small starting capital might hinder my growth. Instead growing fast, I’ll develop slowly. Sure, I don’t risk anything, but I migth not develop to a full potential
- I lack money for a nice office and employees. I’d have to work double and triple time to make up for this.
- My image is that of a small business, some clients might not trust it.
The problem is indeed complicated. I might contract that 200K loan and kickstart my company with a bang. With a good management and work I will be able to profit and erase all debt. Instead of taking baby-steps I can leap into a good business. There are still all kinds of risks and the chance I might not make it.
For me it’s better to go slow and on my own investment. I might be seen as “small” by some clients, but I am in no debt. All the money I make can be reinvested in the company.
In the end it’s about personal choice. There are some projects that need a huge initial funding, so the ’start small’ strategy might not be good, and companies that can be started in a garage and have a multi-billion profit in some years.
What do you think? How would/did you start?
Man what a great post. It is not often someone will post the pros AND cons of small business ownership. Thanks so much for the info.
i think i’d probably pass on the 200k loan. it just seems like too much pressure. and it more or less ensures that failure here will be catastrophic. i guess i’m more risk averse.
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It is best to start small and grow organically. You and your company will be the better for it in the long run as you learn good habits that you wouldn’t otherwise learn should you have a boatload of cash.
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I am glad to see both of you share my ideas
I’d like to have 200K, but I think I’d better just grow slowly and not get into debt. It would be a huge pressure on me, that’s for sure …
@ramona: or perhaps, if necessary, a loan yes, but a smaller one?
that way there won’t be as much pressure, but maybe an injection of capital might be helpful to get over an initial hump.
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I completely agree with you. It is always better to start slowly, unless you have really no-risk business combination which is 100% secure earner. Business that are risky are really painful and you will always be under the stress, and i am sure that is what everyone is looking to pass by.
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It is best to start small and grow organically” this is very true, i have been offered many deals and offers for investments but i turn it down because either way im going to have to pay that money back.
I prefer to start from the bottom and work, I think the bigger the challenge the better, it’s all a learning experience!
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An individual that should take out the $200000 loan is one who has the feeling that it might not even be enough for the large plans they have in mind. If this is not the case, that sum of money should not be borrowed.
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I agree with the others that you should hold off on loans to start your website. Grow it yourself organically on a shoestring budget, put in 12 hours per day, and have a detailed business plan.
Most investors aren’t going to touch a startup website until that site has shown significant growth and profit potential.
You can always make money on smaller sites with affiliate offers & advertising. Then use that money to fund your larger web project.
I would forget employees until you get extremely large. It’s relatively easy to outsource software development, web design, and marketing, on sites like Elance.
Good luck!
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Ramona I think starting either low or with a bank loan (good luck on that for awhile) is best. You sound like you want full control over your OWN business. I know I would. But take all the advice you can get too. A large loan is of course tempting but the way things are right now who knows how a business will do for awhile.
start slow because in the end you won’t owe anyone money! Patient is KEY! i tell that myself all the time lol.
always is better to start from small things, you don’t have much to lose if something goes wrong
i don’t think that 200k loan is small thing 
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Great advice,many thanks,very useful info!
Best wishes
i think i’d probably pass on the 200k loan. it just seems like too much pressure. and it more or less ensures that failure here will be catastrophic. i guess i’m more risk averse.
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This very nice topic and discussion. I myself would choose starting on my own very small savings and growing at my own pace. The reason is mostly influenced by the fact that I have to feed my family. Getting some loan could be one nice alternative, not only because it could be used as a leverage, but also it would motivate us even more to get busy. But in my case, I think I already have my family as a compeling reason to get busy.
But you also got a nice point there; getting a loan could make someone to end up wasting money on all kinds of useless things
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Thanks.. Interesting - and always important to be aware!
hey id like to talk with you about your blog. please email me - thanks.
[...] written about this in a past article that had an excellent response from you, my readers: Start low or get a 200K loan? and Is a small business [...]
It dosen’t matter how much loan you are having before starting the business. Its your proper distribution of that money and hard work that can overlook your tension of the loan. And also marketing is a great factor. Very inspiring and challenging article. Great job. Keep it up.
It is depends on how you willing to take the risk. If the business is worthwhile and the borrowing is necessity then go for it, other wise start slow and build up your empire.
Stumbled upon your blog and read a few of your postings.. Nice blog. Keep up the good work. Looking forward to reading more from you in the future.:D