All too often, people go into business without any savings, entirely using loan money from friends, banks, or the SBA. They except for to be able to start paying the loans back right away with their earnings. What these business owners don't realize is that it can take months or years to make a revenue. And once a lender discovers a business isn't as gainful as probable, the lender is likely to call in the loan or refuse to renew it for another year. Often new business owners then have to take out home equity loans or use credit cards to pay off their loans (which puts their home and credit ranking at risk). For more information, see Business Financing FAQ.
A better plan is to save up as much of the needed investment money as possible, as well as your living operating cost for the first year, or even two. chances are that your business won't be profitable for one to two years. Even if you get prosperity of business coming your way -- and your clients pay you on time, which isn't always a sure thing -- you'll want to be able to invest most of that money back in the business for space, tools, promotion, and indemnity needs.
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