Episode 317 Borrowing Money for your Business

Scott talks about ways to establish credit and how to use it wisely for your business.

Episode Transcript

(00:10):
Hey, everybody's Scott Terry here andyou are listening to the Scott Terry Show.
This is episode three hundred and seventeen, and we're gonna be covering a
topic that we don't usually cover onthe show. Actually, very few people
in this space talk much about it. And that is because in a perfect

(00:34):
world that was governed by Biblical law, in a perfect world where our currency
was backed by gold or silver oreven toenail clippings and not a fiat currency,
we wouldn't we wouldn't necessarily be havingthis discussion. But the topic,

(00:56):
the topic tonight is borrowing money wisely, and it's like I say, if
things were perfect, we would notbe even having this as a topic.

(01:18):
But the reality of things is thereality of things, and the reality of
things is we live in a nationthat is far far from a nation being
governed by biblical principles. Our currencyis based on nothing. It's just a

(01:40):
fiat currency that loses value every second. And because of that, to be
able to operate in this economy,from time to time, we need to
borrow money, whether you have tobuy your first homestead, buy land for

(02:02):
the first time, starting a business, operating a business, Unfortunately, borrowing
money is something that pretty much everybodythat's listening to this episode is going to
have to do at one time oranother. But there's very little discussion on

(02:29):
how to borrow money wisely and differentways that you can finance a business in
the beginning years, different different tricksand ways to do things where it may

(02:51):
not cost you as much money inthe long run. So we have to
preface this, of course, withwith the biblical fact that the borrower is
the slave to the lender, andthat doesn't change just because we have to

(03:13):
do it. That is a fact, and you have to let that sink
in anytime that you find yourself havingto borrow money. But in today's day
and age, there's very little thatone can do without having a credit score,

(03:34):
and it'd better be a very goodcredit score. They tell me that
even a lot of jobs these days, they look at the applicant's credit score.
If you want to rent the house, they look at your credit score.
So this is something that we needto talk about because we've got a

(03:59):
large group of people that listen tothe show of varying degrees of maturity.
There's homeschooled kids that are starting outfor their first time, gonna buy their
first land, try to start theirown first business. We have people that
have lived in a consumer society andprobably ruined their credit, borrowed money,

(04:26):
acted irresponsibly, are trying to changetheir ways. They're trying to live a
simple life, trying to figure outhow to balance all these things. So
I'm going to try to cover alittle bit of everything in this episode that

(04:46):
relates to credit and borrowing money.And I guess one of the first things
would be a lot of there's alot of folks that don't have any credit
history. Like I said, itmight be there might be some kid that

(05:15):
grew up on a homestead that washomeschooled and now he's getting ready to go
out on his own and he hasno credit score. It might be somebody
like me four or five years agoI was in this situation. You grow
up in American family agriculture, whichis a wonderful thing, wonderful thing,

(05:42):
but there's lots of dark sides tothat that nobody talks about, and you
can end up being a forty fiftyyear old man with no credit score because
very little money ever changes hands.Everyone's on the same farm, but everything
is in the name of the oldergeneration. The A lot of people don't

(06:06):
realize how family farming actually works,but that that's there. You can end
up all done and get ready tostart over and realize you're starting out like
the teenage kid that's starting out fromscratch, only you're almost a half century

(06:27):
old. So I think the firstthing I'm going to talk about is how
to establish credit, because, likeI said, in this society, you're
not going to be able to buyland, start a business, do anything
unless you can prove even if youdon't borrow any money, you're still gonna
have to prove that you have theability to pay money back. And so

(06:54):
this credit score thing has become amilestone around a lot of people. Next,
but it's actually very easy to Ijust did some research. When I
was in this position. I'm like, good grief, I'm starting all over
from scratch. I got a lintin my pockets. I'm gonna go out

(07:14):
and work, gonna try to builda new business, build a new family
business and get it off the ground. And I'm going to have to have
the means to borrow money. Sohow do you do that? So the
easiest way to do it I'll tellyou how I did it anyway, and

(07:35):
I found it to be very easy. But you got to be patient.
You have to be patient. It'snot something that you can just go and
snap your fingers and woohoo, Ihave credit. That doesn't work that way.
Well, what you need to dothe first step. If you have
no credit history and you have nocredit and you're not able to borrow money

(07:58):
because of that, the first thingyou have to do is find a secured
credit card, because no credit cardcompany will even give you a credit card.
And so I want to preface thiseven before I get any further.
The credit cards are for morons.If you're talking about borrowing money using one,

(08:22):
never ever, ever, ever,ever, ever, ever, ever,
ever ever ever finance anything with acredit card. If you do,
you deserve, you deserve what youget, which will be torment and terror
and hell. Most credit cards thatyou will be able to get will be

(08:50):
in the twenty to twenty five percentinterest rate. It's a scam, it's
ridiculous, but this is the easiestway to stay ablish credit. This is
all you're doing. You're using thiscredit card as a tool. You use
their own, their own weapon againstthem. So to speak, so you

(09:13):
get what is called a secured creditcard. Now, a secured credit card
is kind of funny because it's they'renot loaning you any money and they're taking
zero risk, but it still istechnically considered a credit card. You actually
have to if you want two hundredand fifty dollars worth of credit, you

(09:39):
have to cut a check for twohundred and fifty dollars, give it to
them, they deposit it, andthen they give you a credit limit of
two hundred and fifty dollars, sothey have no risk. So what you
do next and you can do whateveramount you want to do. At the

(10:01):
time when I did it, Ihad only about two hundred and fifty dollars
that I could sacrifice for this project. So I believe that's what that's what
I did. And I don't knowif there was a minimum or not.
That might have been the minimum.I have no idea. I can't remember
anyway, And you can find thisstuff just by Google. Secured credit cards.

(10:26):
I think the one that I usedwas a Discover card. It was
the easiest one to run the applicationon and everything, and they wanted the
least amount of information and you justkind of gave them the money and they
gave you, gave you the credit. So after that, you get that
and you find some bill that youreligiously pay every month, it doesn't matter

(10:50):
if it's a ten dollars charge,a twenty dollars charge, whatever, and
have it taken out of that cardand then every month reallygiously pay that off
before any interest has occurred. Sosay you put say you're living in an
apartment in your electric bills fifty bucks. Okay, you have your electric bill

(11:16):
going there. Or say you've gota website and your web hosting is twenty
nine to ninety five a month andyou're already paying it, put it on
there and then just pay that sameamount that you're already paying some other way
through that card. And in abouta year's worth of time of you making

(11:43):
charges and paying them off and nevermissing a payment, you'll get a letter
in the mail from them and they'llsay, oh, we've sent you a
check, sending you a check forwhatever you had that account, sending your
money back, and we're gonna giveyou a credit card. And might say

(12:09):
we're giving you a credit card witha three thousand dollars limit. So what
you want to do is you dothe same thing. You put some more
expenses on that stuff. You're gonnapay you never ever, ever, ever,
ever ever ever let it charge youinterest, pay it off. You're

(12:35):
not borrowing money using this thing.You've got to remember that. That'd be
the dumbest thing you could possibly do. You'd make Joe Biden look like an
Einstein if you borrowed money using acredit card. Take that and just put

(12:56):
a couple of bills on it,and pay those bills through that card,
even after they've actually given you credit. Within a couple of years, you
will have a perfect credit score.It takes time, and it depends on
there's a few more tricks you canlearn. I fiddled around learning the different

(13:18):
tricks because I had to get mycredit score better faster, because we had
plans and ideas and needed to havethe credit. They figure it out on
a calculation of different things, anumber of lines of credit that you have
and that you don't miss any payments. But a lot of it is the

(13:41):
length of time that you've had credit. So a lot of it you can't
change. You just have to wait. But you should start doing that immediately
so that you can establish a lineof credit. I'm sure a lot of
people are listening to this. Iknow all about that already have creditn well,

(14:01):
that's great, find whatever this isfor people who don't because I didn't
know how to. I actually learnedabout it just because I was researching trying
to find out how to do this. So that's how you do it.
But again, you never ever,ever, ever, ever, ever ever

(14:22):
use a credit card to borrow money, because you'd be an idiot if you
did. Now you can find creditcards that'll give you one percent cash back.
You can find credit cards that willgive you two percent cash back.
You can and you can actually usethat to put all of your bills on

(14:46):
pay it at the end of themonth every month and actually earn one or
two percent on everything that you spent. I've done that, and there you
can actually use their weapons against themand make a little money on it.

(15:07):
So that that is how you establishcredit if you don't have any. My
older boys, that's how I've setthem up so they have it. And
that's all. That's all I didto go from having no credit history within

(15:30):
very short amount of time having acredit score high enough that if I need
money, I have no problem gettingmoney, which leads us to the next
little part of the credit discussion,and this is business credit. So I'm

(16:00):
going to talk much about borrowing moneyto buy land or buy a house.
I think most people have a prettygood handle on that. You need you
want to have a lot of moneyto put down no more. Save,
save, save, save save.Remember, we don't like debt. We
don't want debt. We don't wantto have to borrow money. And the

(16:22):
less you can borrow the better.So when you go into a real estate
deal, have twenty five thirty percentof it, there's a down payment when
you walk in. That is that'sthe way to do that. But what

(16:44):
I want to talk about is wehave a lot of people with entrepreneurial spirit
that listen to the show, thatwant to start their own business, want
to not have to go and workfor somebody else, and part of that
is being able to borrow money andthe reason for that, And so I'm

(17:07):
not talking about a lot of alot of people come into this whole homesteading
agrarian movement where they think, youknow, they could pay cash for a
little homestead, have a couple ofmilk cows and chickens running around, pigs
and a big garden, and ohwell, we could sell soap and eggsit

(17:30):
the farmer's market and a few porkchops out of the freezer, or you
know, or even seven or eightsteers and a thousand meat chickens, and
we're gonna we're gonna be able toquit our jobs and make a living off
off of the land. Well,that people realize really fast that that's not

(17:53):
how business works. It's not todiscourage anybody from doing those things. You
can do those things, make extramoney, make enough money to pay the
taxes, make enough money to dothat's great, wonderful you should be doing
that, But don't borrow money ifthat's what you're doing. If that's what
you're doing, well, just workwith the money that you have to do

(18:18):
that stuff. Grow small, that'sgreat. But if you're trying to build
a business where you're going to actuallymake an entire salary that your family can
live off of for a year,what a lot of people don't realize is
that you've got to make I mean, you've got to have like a quarter
million dollars worth of sales to beable to end up with a thirty thousand

(18:47):
dollars salary for your family. Imean basic, basic numbers that a thirty
percent profit margin, you'd be lookingat one hundred thousand in sales. But
the reality of that is there's alsoa ton of other stuff that comes up.

(19:11):
There's insurance, and there's repairs,and there's taxes, and there's equipment
that needs to be replaced, newequipment that needs to be purchased, expansions
that need to be made. Soit never kind of works out that when
you figure in all that other stuffyou're looking at usually to be able to

(19:36):
comfortably pull a thirty thousand dollars salaryout of a business, you're looking at,
in my experience anyway, closer toquarter of a million in sales.
And the only way that you cangenerate that kind of income, especially in

(19:56):
agricultural type businesses, is you're gonnahave to in the first years, you're
gonna have to borrow operating money becauseyou spend a bunch of money up front
to get things rolling and until thatfirst crops start coming in and the first

(20:17):
income starts coming in, so youcan have a profitable business where you borrow
money, borrowed money, you gotyour crop in you paid back all the
loans, plus you had yourself asalary for the family. But now when

(20:37):
you start up next year, maybeyou only we're able to squirrel away another
five thousand to go towards operating expenses. It takes time to get to the
point where you don't have to borrowoperating money, and that's what you should
be trying to do. I mean, I know that's my goal, is

(21:00):
to get to the point where Idon't have to borrow money this time of
year. But the reality is,if you're gonna get started, you're gonna
make that You're gonna have to inthe beginning. You know, if you're
going to borrow, you might haveto borrow thirty forty thousand dollars to get

(21:27):
everything rolling. And this crop mightnot start coming in until June or May
or whatever. It is, Solike, what what we do? I
mean, starting right about now,I haven't had to borrow any money yet

(21:48):
We're still we had enough leftover thatI'm still buying stuff on money that's in
the bank. But here in acouple months, I'm gonna have to borrow
twenty thirty thousand this to keep thingsrolling. I bought all the fuel this
year with money that we had onhand. Last year I didn't. I
had to borrow that. But Ihave that. I know that if everything

(22:15):
goes right and I don't have somecatastrophe that all the greenhouses burned down or
something, by the end of May, I will make enough money to pay
back any money I have to borrow, and then it'll all start be in
profit. So the first year thatwe did this, after buying the place

(22:44):
and getting everything set up, westill had like we saved back, like
twenty thousand to use for operating money, and it wasn't enough. And so
I was like, Wow, whatare we going to do? And so
I actually had a a friend wholoaned me ten thousand dollars and then I

(23:06):
had I don't know. I wasjust sitting around one day and I thought,
what about having a zero percent introductoryEATE business credit card. I wonder
if they make such a thing,And so I jumped on the old jugles
and looked around, and sure enoughthey did. So I filled out an

(23:30):
online application for one and got onefor fifteen thousand dollars worth of credit,
which was about what I lacked becausemy hard goods ordered that year was going
to be fifteen thousand, and soit was zero percent for a whole year.
So I mean that's free money.And so that's how we did the
first year. Last year I searchedaround for more of them, I didn't

(23:53):
find any, or if I did, they were ridiculously low lines of credit,
which wouldn't have made a bumping theproblem. So last year I talked
to Farm Credit and I got likea fifty dollars line of credit with them.

(24:19):
But with interest rates the way theyare now, they're up above eight
percent for operating money. But onething that you can do if you have
to borrow operating money so that youdon't have to be paying on the principle,

(24:40):
and if you it's a guaranteed thing, you know, in five months,
I can have all this money topay it back. Then you can
do kind of like what I do. I'm on interest only payments. So
any money that I borrow, likeI said, borrow any of this year
yet, but any money I borrowthrough this next five month period, I

(25:07):
only make interest payments on it,and then the whole balance is due on
the first of June, and ifI can't pay it back by the first
of June, I got some prettyserious problems going on where I'm probably gonna
fail anyway, so that that's oneway to one way to do it.

(25:29):
But this year, just about thetime I was, we've been sitting here
calculating when we're gonna have to borrowsome money because they're still sitting pretty good
right now, and we've got Christmasseason going that's gonna be starting up next
week. We're gonna start making makingwreaths in Garland, and that's usually a

(25:52):
pretty pretty profitable little side venture.But anyway, I was thinking, boy,
I wish I had another because lookingat the prospect of paying eight percent
interest on borrowed money kind of makesyou sad. But historically eight percent interest

(26:15):
isn't really that bad. It's notlike eighties farm loans where people were paying
eighteen percent. I mean, historicallyeight percent is kind of about average.
But we've been spoiled from twenty yearsof having artificially low interest rates, which
is why we're paying for paying forit now with interest rates we're not used

(26:40):
to, and I don't those threepercent three percent loans are not coming back
anytime in the near future. I'mprobably never going to see him again.
So I thought, well, actually, I got an envelope in the mail.
It was envelope I usually would havethrown out, but out of curiosity,

(27:03):
I opened it up and it wasa business credit card offer for zero
percent for the first year. They'relike, well, well, that has
saved some money. Zero percent forthe first year. So I filled out
the application and they approved that fortwenty thousand dollars. The credit for a

(27:26):
year is zero percent. So I'llfinance my hard goods through there, because
that'll probably be about twenty thousand forpots and dirt, and yeah, pots
and dirt. That's about all it'llbe on that all it'll be on that
order. But so it's little thingslike that. If you can find just

(27:52):
constantly be looking for zero percent introrates. If you know you can pay
it back, that's it. Andyou gotta have a pretty good probability.
Don't borrow this on a wind.Don't have a plan, I guess,
is what I'm saying. There's somany people that have a plan, but

(28:12):
it's so rosy of a plan thatif all your friends look at it and
say, I don't think this isgonna work, listen to them because it
probably isn't gonna work. You wantto factor in every worst case scenario that
you possibly can before you borrow money. And the other thing is, once

(28:33):
you get this stupid zero percent creditcard, after that year is up,
do not finance anything with it.Do not finance anything with it. Don't
use it as borrowed money. That'sstupid because if you look, it'll go

(28:55):
up to twenty percent once the yearis over. But during that first year
you to borrow zero percent money,and then afterwards. I mean, I
still use the other one, butI don't use it to borrow money.
The expenses go on it because theypay one or one and a half percent
cash back on it. So whywouldn't I run fifteen twenty thousand dollars worth

(29:22):
of expenses on that and pay itoff in total at the end of every
month, and then that's saving meone and a half percent my expenses.
So it's just something to think about. You have to sometimes think outside the
box in the beginning. If youcan grab some zero percent money at their

(29:49):
expense, that's a really cool wayto do it. I've done it twice
now, and like I say,when it's a over unless all depends on
the reward scheme that they have init. You can use these things against
them. I mean, I haveno no love for these institutions that are

(30:14):
issuing these things. They're just tryingto trap somebody into consumer debt. Well,
of course the business cards aren't quitethat way, but they're still trying
to trap you into paying a bunchof interest to them in a later date.
But after that, I mean,then farm credits eight percent looks a
lot better, and hopefully in thenext five to ten years will have grown

(30:41):
to the point where we'll have enoughextra money left over we won't have to
borrow operating money. But you can'tbuild a business that's going to be big
enough to actually make a living offof in the beginning without borrowing money somewhere.
So anytime you can find the cheapestway to do it, to me,

(31:07):
it just seems like seems like commonsense, kind of a no brainer.
I'm trying to think if there's anythingelse that I want to add to
this little episode. It's not gonnabe a very long episode. Well,
there was something that was on mymind today as we're kind of playing out

(31:30):
the future growing season here, andas soon as I survived the Christmas season.
Hopefully then we're gonna we're gonna begoing into going into things full boor
for spring. But then that's theother guy was talking to the guy that

(31:53):
owned this place before me, andhe was like, well, they used
to they used to give you creditat the wholesaler level where we buy this
stuff. I guess not that wayanymore. I was showing him letters that
I got, and I mean,they want everything up front immediately now,

(32:17):
and he's like, yeah, itwas never that way before. He's like,
this is a hard time to tryto start up anything, Like,
yeah, it is. But thething is you've just got like I could
have sat back in the beginning andsaid, forget it, it's too hard,

(32:37):
we can't do it. But youjust got to look around and find
different, different ways to finance things. But again, I can't stress enough
that when you're using these credit cards, you have got to use them wisely.

(32:58):
It's just I would hate I wouldjust hate hate myself if I thought
that somebody didn't understand that and wentout and tried to start a business using
using credit cards, because that's that'snot what I'm talking about. It doesn't
make any sense. Maybe you couldget the Democratic nomination for president for the

(33:25):
next go round. If you tryit, just don't do it doesn't make
sense. It's a bad idea.The only reason we're borrowing money is because
we're forced to. And if we'regoing to build multi generational homesteads and businesses
that actually make enough money that peoplecan stay home and be there, it

(33:50):
requires borrowing money in the early daysto get it off the ground and get
it going. There's a lot ofpeople that won't borrow money out of principle,
who will never never be able tostart something of this kind of magnitude.

(34:13):
You know, it's and that's justmy two cents on it, And
that's some of my ideas as faras finance credit for small businesses, not
micro businesses, like I said before, unless you get that micro business to

(34:36):
the point where you're ready to scaleit. And again, I think that's
one of the biggest things that peoplejust don't understand about having a family business,
is that difference between making enough moneyso you can help up with the

(35:00):
property taxes or something, versus makingenough money that you can make a full
time living off of it. There'sa huge gap in between there. It's
a huge jump to go from oneto the other. And a lot of
the smaller type businesses aren't scalable.You can't scale them up. So you

(35:23):
have to whatever kind of business youdecide that you want to make a real
business out of, you have tokeep that in mind. How scalable is
it, because you have to scaleit up into almost uncomfortable territory for most

(35:43):
people. And that's why most peopledon't own their own businesses. That's why
most people aren't their own bosses.Because it takes a certain level of commitment
and a certain level of now wellrisk that you're willing to take to be

(36:05):
able to be able to do it. And I don't say that you should
take risk kind of haphazardly, justI should take risks. You need to
have some fear. Some level offear is really good because that's what keeps
you alive and keeps you out ofdebtor prison. But you can't be that

(36:27):
timid person. Or if you arethat timid person, that's not that's not
the end of the world. There'sno shame in not owning your own business.
For me, I I like that'swhat I live off of. I
would drown and be suffocated if Iwasn't running my own business, but that

(36:49):
doesn't mean everybody is, and noteverybody should. And if you don't have
that drive and passion for running yourown businessiness, then you probably shouldn't.
And in a lot of ways,you could lead a lot better, a
lot less stressful life, and makemore money being the number one or number

(37:12):
two man at a business somebody elseowns and do a really good job for
him. Kind Of just felt likeI had to throw that out there too,
because I'm not saying that everybody should, but I realized that the majority
of the people that listen to thisshow probably do have what it takes and

(37:42):
probably do have those dreams and desires, and that's why I'm trying to give
some practical information about how to getstarted and finance something. Anyway, I
love you guys, God bless youall. I will be back again here
soon. The next episode will probablybe more nuts and bolts homesteadying and agrarian

(38:09):
living type stuff. I hope youweren't too bored by this episode. You
can always find the old articles thatI've written at Northcountryfarmer dot com, Backwoods
Resistance dot com, and if youhave questions for a Q and a show.

(38:29):
I'm starting to get some piled up, so we'll be doing one of
those soon. You can send mean email at Terry Family Greenhouse t E
R R. Y Family Greenhouse atgmail dot com. Just put podcast question
in the subject line and if you'vegot questions on entrepreneurship, doctor and cattle

(38:55):
gardening, firearms, whatever, I'llbe glad to help you out if I
have an answer, and uh yeah, we'll catch you on the flip side. H