I got an email from a reader who wanted to start a project that he was really passionate about. But he did not have the money to start.

He asked me if he can get a loan. In fact he asked me if I knew from where he can get a loan; he was clear that a business loan will help him start his business.

Loans make you a Bad Entrepreneur

Is Taking a Loan the Right Way to Start a Business?

If you’re trying to do a business that requires more money than you have, you can:

  1. Take a loan from a bank.
  2. Seek out investments either from big Venture Capital companies or from angel investors (ranging from investors like Brad Feld, Tim Ferris or Alexis Ohanian, or your Father, your uncle or your rich friend).
  3. Find a different business.

I am invariably tempted to the last option: find a different business. There are so many opportunities, why am I stuck on the one that is harder to do? Why eying the fruit on the top when other fruits hang low!?

Your Business Put You Under Debt?

What kind of an asset puts you in debt? A business should generate income for you – preferably without your intervention – and not put you under debt.

But if your business idea is something that you really, truly want to do, then you can always take on a partner or pitch your idea to investors. That is inherently different than taking a loan of course.

If you are looking to start a business and the only thing stopping you is lack of money, then there is a chance that you’re being a bad entrepreneur.

Sure, you may know a friend’s friend’s uncle’s neighbor’s sister’s husband who started his now-successful business after taking a loan from a bank.

A lot of people may pour over spreadsheets that calculate the ROI on your investment, factor in the opportunity costs, the rate of return on the loan and throw some magic dust onto the interest rate and tell you if it’s feasible for your start your business with an X amount of loan. I stay away from those people.

A Matter of Choice?

Here’s how I see it.

An entrepreneur is someone who takes the resources available to her or him and applies them in the most efficient manner. If you do not have money available then how can you apply it efficiently?

You can partner with someone. Take on investments. Eat a smaller piece of a bigger pie. The business takes on more complexity but you do remove hurdles such as lack of funds.

But that is not at all the same as taking on a loan.

When you take on a loan, you are paying interest i.e. usury or sood. You also probably know that God strictly – very strictly – forbids us to take sood on our loans (Islam, Christianity and Judaism all forbid usury). I for one DO NOT think that paying interest is the same as taking interest. But I do believe that I’ll be part of their profit equation.

And I try to steer away from that.

I have a very clear strategy when it comes to starting – or carrying forward – a business. I do not take loans. Going under debt is a bad way to start your business. And this is a personal decision, a rule of thumb, a heuristic that I use to help me decide quickly and effectively. I hope.

For me, it is easier to not take loans because of these two simple factors:

  1. I am a bad entrepreneur if I start a business that requires the kind of money that I don’t have.
  2. I don’t want to even pay interest because my Creator has warned me clearly of the harm that interest (usury) entails. I may pay interest if I have to, but I really don’t have to (see #1).

… these two factors make it all too easy for me to drop a business idea and find another one.

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