You have a great business idea, everything seems to flow right and you are confident you can make money. More than likely you’ll need cash to fund this idea to make it scalable. So you’ll need cash…and where do you get it? One of the biggest obstacle and hurdle for most startups is CASH and funding. Some of you maybe too young for this topic, but hopefully this will help provide a building block to those thinking of expanding their re-sell game or simply starting up a new business.
When I first started Netmagnetism, I started at a small scale buying only shoes in my size and shoes I liked because I wasn’t fully confident it would work. I literally was buying shoes that I have sold back in school just to own it back since I have been working full time for a few years and had a bit of pocket change saved up. My logic was if it didn’t work, I could just enjoy the shoes myself and just treat it as a small sunk cost. But very shortly I realized this venture would definitely work and I wanted to make this bigger, but the cash I had available to buy shoes to re-sell was limited. Especially given the niche of shoes I’m in where a pair can easily go for $500 + and that would mean I couldn’t really buy much. Coupled with the fact that re-sell doesn’t often translate into a quick flip, having cash to buy new opportunities is a big equation to success. Its VERY VERYdifficult to get people to believe in your venture initially because we all know almost 90% of business ventures fail. Borrowing cash becomes extra difficult from friends and family and this is entirely normal because when you put yourself in their shoes, you’re pretty much lending money that you might not ever get back… So how did I do it?
I’m not a person that likes to ask favours so I usually try to resolve everything by myself. One of the biggest bonus I had at the time was I worked at a bank and I was able to get a line of credit (LOC) for relatively cheap. How I define cheap is the cost of borrowing. I was lucky enough we were just coming out of a recession and Canada kept rates low to stimulate the economy to encourage borrowing. The lending rate I had at the time was 4%, which means for every $100 I borrow, I have to pay $4 in interest on an annual basis (OR 33 cents per month). I had a line of about $40,000, which was enough to get me a substantial base to work with in buying shoes to resell. But soon after some small success, I was able to convince my family and good friend this venture is working and I was able to get some more funding to do more buyouts. Some of you may be too young to be eligible for a LOC as you don’t have any assets for the bank to collateralize against your credit risk. Moreover, some of you that currently don’t have a LOC, you may not be eligible for a large LOC initially as most banks typically allocate a starting LOC of $10,000 depending on your salary. But don’t get discouraged because the bank also wants to protect itself from you running away with the money. Over time, if you are are in good standing and make regular on time payments to amortize the loan, the bank will automatically increase your credit limit on the LOC. Sometimes, you can even negotiate with the bank to ask for an increase in credit. The bank essentially becomes your best friend. Don’t rely on the government because even though they advertise and promote start up innovation, they are extremely stingy and on loans and grants and moreover, they don’t grant loans on business based off of reselling. Hopefully I’ll write about part 2 next time…if you have any questions for me, feel free to drop me a comment below and I will try my best to help.