A Beginner’s Guide To Using Other People’s Money When Launching A Business
The enormity of the finances required when starting a business can make you feel like an ant staring up Mt. Everest. The U.S. Small Business Administration estimates that “most micro businesses require $3,000 to get started,” which is a significant amount of cash for just getting off the ground. That number can be taken contextually amongst the backdrop of the average amount of money that the average American household has saved: $8,863, according to a 2018 article by Bankrate. That means that the average American household would have to dole out over ⅓ of their savings to hinge on a startup.
Of course, the financial situations of first-time entrepreneurs can differ widely, but one thing is for sure: no one wants to use their own money if they don’t have to. We can borrow a page from the playbook of Robert Kiyasaki the author of The Art of the Start and Rich Dad, Poor Dad, in which he states that the best way to make money is by leveraging other people’s money, or ‘OPM.’ Alyssa Gregory wrote for The Balance Small Business that “Using other people’s money also buys you time and allows you to do things in your business, you may not have been able to do if you financed it yourself. You have more options, increased reach, and the ability to make a bigger impact much quicker as you start your business.”
Still, with all its benefits, it can feel intimidating. How to start? Whose money to use? Colin Yurcisin is the founder of Credit Class, and helps hundreds of students around the world leverage credit to start their businesses, build income streams, and travel while doing so. We sat down to create this beginner’s guide which will help you to understand your options so you can invest in yourself and get started on your business.
A Beginner’s Guide to Using Other People’s Money When Launching a Business | Stephanie Burns
1. Consider Using Credit
Believe it or not, lines of credit from credit cards are considered other people’s money. Sure, it’s the bank’s money, but it’s a form of borrowing nonetheless. Yurcisin filled me in on why he always advises new business owners to rely on business credit cards. “When applying for a business credit card, the credit limit will typically be three times the amount of your highest personal limit,” Yurcisin explained. “This means that if your highest personal credit card has a $10,000 limit, you can qualify for up to $30,000 in business credit.”
Obviously this will need to be paid back — but with most business credit cards, there’s a bit of a delay before the first payment is required. “Many business credit cards have a 0% interest rate for the 9-12 months, which gives you time to start to turn a profit in your business and pay off the loan before a cent of interest is ever accrued,” Yurcisin added. Plus, perks galore: some business credit cards allow you to use the points from your business investments to pay for flights, hotels, and rental cars, and can even unlock cool benefits like lounges at airports or even co-working spaces (like American Express’ partnership with WeWork last year). Yurcisin helps his students travel in luxury for free or little to nothing by taking advantage of this credit.
2. Grants, Loans, And Awards
Especially in the current economic climate, it’s more important than ever to be privy to updates that can help your business. As Farnoosh Torabi shared with SoFi, “Information is so vital to your success right now… there’s no such thing as too many resources when it comes to financial health.” Right now, these resources can include government stimulus packages, federal loans with amenable loan forgiveness plans, subsidies, grants, and more.
A note about the loans, however: your credit score matters greatly. “Your credit score is a reflection of your brand,” explained Yurcisin….
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