Debt Financing

Debt financing involves borrowing money and promising to pay it back according to a set payment schedule. Young entrepreneurs who have never heard of asset financing usually think debt financing is their only option for raising money to start a business. But young entrepreneurs should carefully consider the risks of debt financing.

• Will you be able to pay back the money you borrow? 
• Will having a loan payment due every month put you under stress to work when you need to be studying?
• What will happen if you default on the loan?

Some people have gotten very wealthy by borrowing money that allowed them to turn a business opportunity into reality. But for others it has been disastrous. Would you borrow money to start a business? Here are two different opinions about teenagers getting loans:

• Dave Liu, 14, co-owner of Shrezzi Design Group in Pleasanton, CA: “I would strongly advise against borrowing unless you have already devised a ‘fool-proof’ business plan. You need to figure out how you are going to pay off that debt before you borrow.”
• John Stiratt, 17, founder of JARR, Jr. in Shorewood, WI: “Yes, I would borrow. Without some money, you can’t get started. The way I look at it, if you don’t have capital, you can’t make money. A loan is a good way to get the capital you need.”

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