All that Glitters is not Gold

A low interest rate loan scheme could tempt many businesses but beware, all that glitters is not always gold. 

A government backed ‘Start Up Loans’ scheme to offer low interest personal loans to start ups and early stage companies has experienced a default rate of over 47% in its first three years. It also states that around a third of the loans went to individuals who were previously unemployed or economically inactive.

Stockport entrepreneur Garry Diver takes a look at why these glittering offers may not always be the golden eggs we are looking for.

Mmmm!

Sounds a bit like a payday loan scheme sponsored by the government and farmed out to third parties who were commissioned based on the loans that were handed out.

Money Alone Does Not Guarantee Success

Now don’t get me wrong, I’m a great fan of financial support for early stage business if, and this is important, if they are commercially viable and have a reasonable chance of making it. But money alone does not guarantee success. Indeed, in my experience, it is the least important ingredient after a stonking good idea, a committed entrepreneur, a great team, a solid marketing plan and lots of hard work.

So, if I wanted to raise money to fund my business this would be the last place I would go. Try Family, Angel Investors, Banks and Venture Capitalists first.

They will, of course, ask difficult questions, want a detailed description of how you will grow the business and, surprise, surprise, how you are going to make money for them.

And that’s the point. You will not get funded unless you have a plan that people other than you and more experienced than you believe is viable.

Drive and Determination Matter

Now we can all remember that business that succeeded despite the doubters and made it on their own with little experience and learned through the school of hard knocks. But that’s the other point. If you have the drive and determination you have more chance of success than if you picked up an easy loan and with it a false expectation of success.

There are such things as bad ideas, occasionally really, really, bad ideas. And sometimes a budding entrepreneur needs to be told the bad news. If you have been in this situation and went ahead anyway and build a successful business, all hail to you. But reality is more mundane, if others can’t see the upside, in most cases it probably isn’t there.

Investors Invest in Risk

As they say, be careful what you wish for. Cheap money may not be all that cheap in the final analysis. Don’t miss the message here. Investors are not looking for the next guaranteed success. By definition they invest in risk, aware that not all ventures will make it. That’s the function of venture capital.

It’s still your responsibility to borrow with care and I would put equity funding ahead of loans any day. Or at least a mixture of the two.

So, the next time someone sidles up to you and offers a cheap business loan out of the boot of their car, walk away. You’ll be glad you did.

Article provided by Garry Diver

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