013 DEBT IS A TWO SIDED SWORD

A few episodes ago I talked about debt being cheaper than equity and I had someone respond to me in LinkedIn and say that, well, it was a bit more nuanced than that and I was oversimplifying the whole situation and I can't really disagree with that cuz the reality is in a two minute podcast, you're not gonna be able to get across every single scenario in every single case. The reason debt is a two-edged sword is because lots of founders don't really think far enough into the future about how they're gonna be able to service both the principle i the original amount of the loan that they had taken out, as well as the interest cost, which is the price, if you like, of the debt and the interest may be fixed. In which case you kind of know how much you're paying on a regular basis, or it may be variable, so it, it could go up or down depending on where interest rates move. And the reality is for very early stage businesses, you don't have enough security or knowledge about how your cash is going to move over the course of the next 3, 6, 12 months to be able to take out debt with any confidence because your revenue could go up or. Your costs could go up or down. You simply don't have enough data to know exactly how your business is gonna perform over the coming 12, 24, 36 months, let's say. And the other problem is that as a founder, you may have to give up something in order to be able to take out that debt. And what do I mean by that? As most of you'll understand, banks or other lenders will try and take out some sort of security against anything that they loan you, and that may be in the form of a physical asset, like a building, or it may be in the form of a guarantee from the directors or the business owners. And what that means is you are person. on the hook for that loan should you not be able to pay it down the track. And that can be really, really difficult for a lot of people to understand when you're taking out that loan. In the first instance, it may seem like a really great idea, and it may well be, but really do think through both how long it's gonna take you to pay back that debt, whether or not you're going to be able to, and what are the consequences if you.