To Loan or not to Take a Loan is the Question
"Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man."
(That saying was taken from a soliloquy by Polonius in Act I, Scene 3 of William Shakespeare's Hamlet. Polonius is giving advice to his son Laertes before Laertes heads back to school. Here is more of the quote.)
True, there are all types of loans but for argument sake this conversation we’re going to talk about loaning money. First, we’re going to explore personal loans and then acquiring business loans for a new business.
I don’t think there’s not one of us living or dead who has not borrowed and/or loan money to another human being. Many of us have gotten back or paid back all or most of the money we have loaned. And, there are those of us who have loaned money and gotten it all back but not in a timely fashion. Still there are those of us who haven’t gotten one red cent, however have gotten an attitude from the borrower questioning why we bothered to ask for our money back!
You might be wondering if I had a recent experience of loaning money for bringing up this subject. No, nothing just happen other than me watching another reality court show of civil court friends and family suing over a loan. It made me think about the two line of Shakespeare’s soliloquy "Neither a borrower nor a lender be; For loan oft loses both itself and friend".
Strangely enough, the soliloquy two versus triggered a statement made by billionaire Mark Cuban about getting a loan to start a business. Mr. Cuban said "Only morons start a business on a loan?". Upon first glance at his statement one might be turned off by the name-calling and thinking how can you start a business without borrowing money. However, if you can get pass “morons” and dig deeper, what Mark said about taking out a loan to start a business makes sense!
Gil Silberman, who’s founded many startups and advised hundreds of entrepreneurs, explains Mark’s statement. Mr. Silberman states "He's talking about bank loans, and a relatively small class of innovative startup businesses that are trying to achieve something new and go big with it. For those businesses, a loan debt is a cash drain that makes it harder for the business to succeed, and is typically secured by a personal guarantee and collateral on the part of the entrepreneur who takes the loan, which greatly increases the risk".
Gil continues "Small business administration loans, for example, are very conservative, they do require personal guarantees, and they usually want to cross-collateralize the loan against every other business and real estate the borrower owns, which means they are risking personal financial collapse for themselves and their family. That sort of debt will hurt their chances of obtaining cash from any other source, either personally or as a business".