There are many popular statements in the world of business, but over the years, the veracity of some of them have become questionable, if not altogether false. One of such popular statements is: "The borrower is servant to lender." On the surface, this looks like an absolute truth, but, experience has shown that very large debtors are masters to their lenders, and that is why such lenders do everything possible to ensure that they (large borrowers) stay alive. In extreme cases, some lenders take a life policy on the borrower to cushion against their sudden demise. Who then is the master?

Another example of such popular statements, which is the subject of this paper is "Finance is the life wire of any business." From my experience in small business development, while money has brought many business ideas to life, it has also brought many businesses to grief. That is why in the rest of this paper, attention is focused on the types of money a prospective business founder/proprietor should look for. Must you borrow (at all) to start your business? If you must, what terms and conditions should you look for? What are the Ten Commandments that every intending business owner must obey for money to quicken rather than kill the business? A more elaborate treatment of this subject can be found in my reader-friendly book: Starting a Business without Money?

There is no doubt that money is needed to translate many business plans into realities, but there are a few businesses than can be started without money. It is also common, in many instances, for a business proprietor to combine his own money with other people's money to start a business. However, no matter how big the business vision is, it is always better to start small and, if possible, with your own savings and possible leverages ‘here and there’. If you must take other people's money, a decision must be made, based on empirical and objective considerations, on how much money and what type of money - loan or equity. Usually, the business plan will indicate how much money would be needed to start up the business. This means you should not start your business without a business plan, no matter how simple and rudimentary. It is usually very difficult for a startup to secure loans, especially from banks. Banks only take calculated risks and would not consider a startup since it has no track record against which to evaluate the risk. It is therefore an error of judgement for a startup to look in the direction of a bank for a loan. However, if by any chance, you can get a loan, make sure the tenor and price (or interest rate) of the loan fit very well with the nature and prospects of the business. If, for example you are into buying and selling and you go for a long-term loan, or you are into light manufacturing and you go for a short-term loan to buy your machines, you have already created a liquidity challenge for your business, and your chances of survival will be very slim. Again, whenever you borrow money at an interest rate that is higher than your sales margin, you are only slaving away for the lender. For example, if you borrow at 30 percent per annum and your sales margin (or more technically your return on investment) is 20 percent, it is only a matter of time for your business to wither and die.

Business startups will be better advantaged if they can find people of like mind to invest (or take equity stake) in their enterprises. Unfortunately, in our part of the world, we like to own 100 percent of a weak business than to own 50 percent of a virile company. There are quite several private and public equity investors around; the only challenge is that there are very few serious business propositions. For you to attract an equity stakeholder, you must first ensure your proposal is sound and nicely packaged. Words of mouth alone will not do, no matter how eloquent you are. Do not, out of desperation, admit just anybody to join your business. Be careful to choose people of like mind and values - whether they are individuals or venture capitalists. And no matter how close a prospective business partner is, there must be proper documentation. Failure to do this because of current love and warm disposition will almost invariably bring about serious regrets in the future when, as the business succeeds, disputes begin to arise. At business take off, the most serious prospect of equity are friends and relations, but never omit necessary documentation because of current sentiments.

You may be tempted to ask: are equities better than loans? There is no straight answer to this. Usually, a combination of both (technically called gearing) is needed. If your loans are too excessive, your long run viability may come under serious pressure. On the other hand, if your equity is larger than necessary, you may become complacent and miss the discipline that borrowed funds impose. The ideal combination ratio will depend on the nature of your business. As a rule of thumb, higher equity level will be needed for a manufacturing outfit than for a buying and selling business.

The following commandments have been coined, out of practical experience, for small business proprietors looking for third-party finance to start or expand their businesses. When taken to heart, they will help to avoid waste of time and efforts in searching for finance, or from sourcing finance that will sniff life out of the business.

Commandment One: Thou shall not approach anybody – legal person or individuals – to put their money in your business until you have prepared a business plan showing the organisational, marketing and financial processes of the business. If you do, the result may be very disappointing.
Commandment Two: Thou shall not look forward to borrowing from a bank to cover your start-up expenses. It will never come and you may be frustrated if this is your only hope of starting.
Commandment Three: After you have started your business, but before you approach a bank for loans, thou shall ensure that you have started a relationship with the bank by opening a savings and/or chequing account with the bank. Banks prefer lending to customers than to strangers.
Commandment Four: When your business has matured enough to borrow money from the bank, thou shall not go to the bank as an underdog because the truth is that the bank needs your business to survive. However, when you go to the bank, ensure that you are well armed with a good business plan, and that you are familiar with the bank’s lending terms and conditions. Don’t go too flamboyantly dressed, lest the banker thinks you will divert his money to fashion; or go too poorly dressed lest he thinks you don’t have the capacity to service the loan you are requesting.
Commandment Five: Thou shall study to show yourself approved in respect of all possible sources of funding for your business before selecting the most appropriate for your stage of business development. You shall not be disappointed when due care is taken to approach the right source of funding for the right type of funding.
Commandment Six: Thou shall not continue to own 100 per cent of a dying business when there are prospective investors willing to co-own the business with you by putting their money into it. However, before you agree that someone invests in your business and subsequently becomes your partner, proper documentation shall be carried out, regardless of how close the prospective partner is to you.
Commandment Seven: Thou shall bear in mind that there is direct relationship between the cost of borrowed funds and your business profit. Thou shall always remember that whenever you interest rate is far higher than the internal rate of return on your business, you are only slaving for the creditor or lender; and it is only a matter of time before your business comes to grief, and perhaps die.
Commandment Eight: Because you shall be confronted with different types of financial needs, thou shall ensure that you are never tempted or desperate at any time to borrow or source short-term funding to finance long-term expenses and vice versa.
Commandment Nine: Whether you start the business with your savings or resources from others, thou shall not take a break from your business at the early stage except because of ill-health. You are building a brand and your hard work is essentially increasing the value of your business.
Commandment Ten: Thou shall put in place a receivable (or credit) policy in place that ensures that your never sell on credit more than the credit you also receive from your suppliers.

Finally, and in addition to keeping the above commandments, which will no doubt qualify you as a ready and prudent entrepreneur, you must never forget the place of Divine Intervention in business successes. Unless the Lord builds the business, the entrepreneur labours in vain who builds it. An entrepreneur that discounts the ‘God-factor’ is no better than a farmer who plants and waters his vegetation. Until the Lord crowns the efforts with increase, the efforts will produce no more than motion without movement.