Don’t Trust the Banks – avoid debt

Don’t Trust the Banks – avoid debt
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A lot of people think that the way to go into business by yourself is to emulate one of the contestants on Dragon’s Den. For those who have never seen it, Dragon’s Den is the BBC’s idea of what small businesses ought to do. A small business should come up with an idea, and then seek funding from an internal investor who will lend you the money, you start your business and everyone makes money.

In most circumstances this is absolute fallacy. One of the worst things you can do as a small business is to give away your equity, yet the BBC and the makers of Dragon’s Den seem to have spread this myth that in order to be in business you have to borrow money from a bank, a relative or some nice rich man who generously hands you over the money and then helps you become rich yourself. In reality this simply doesn’t happen.

Most successful businesses I know with sole owners or private owners who have started with nothing and worked up have definitely not borrowed any money at all. If they have borrowed money it has been to buy specific things or to fund a specific geographical move. It has not been to get in external investment so that you can then make more money, but similarly owe someone else a lot of your money.

There was a company on Dragon’s Den some years ago who gave away a good chunk of their equity to a Dragon, who was an extremely rich man, obviously business savvy and saw a bargain when he spotted it. He invested a six figure sum in the business at a very high interest rate, and took a large equitable stake. He then promptly disappeared. The owner of the business worked day and night to make money knowing that all the time, any money they made would be going towards paying off the very nice rich man who had given them lots of money at the start and to service the debt. Would the money have made a big difference to the business? Quite possibly, but similarly it’s fairly likely that the business would have been successful on its own without needing to give away a very large chunk of its equity.

Banks and investors are there to make money, and make money they do.

Banks are nothing more than businesses dressed up as nice people who help you by giving you money in return for a small profit. Don’t fool for it. Banks are there to exploit your weaknesses and to do it mercilessly. As soon as you get a bank involved in your business you can guarantee trouble. Banks will attempt to get you into debt, try and sell you things you don’t need and charge you as much money as possible in order to generate profits for themselves. Forget the nice adverts on the television with the caring bank manager and being there for you, helping you achieve your goals and dreams etc. Change the word ‘you’ to the word ‘bank’ and you’re probably fairly accurate in the whole purpose of a bank.

There was a time when there was something called a building society which was there to help its members makes money, but these are mostly long gone and most financial institutions are there to exploit you mercilessly. If you can set up a business without having anything to do with a bank other than open a bank account and perhaps get a credit card, then you are doing extremely well.

Another key to being happy with your lot in life is to avoid having anything to do with banks. Particularly if it involves servicing a debt that you have.