J. Anthony Allen explains debt financing as borrowing in your company's name rather than your own. Banks typically want three years of credit history before lending to a new business. Allen's company Slam Academy got a $40,000 loan after four years operating and paid it back in five months to fund advertising.
All right, debt financing, another avenue you can go down. This one is in many ways easier than equity financing. I would say it's actually a lot easier than equity financing. Equity financing is a pain in the butt. You have to find investors and court them and it's a whole ordeal. Debt financing is basically a fancy way to say it's a loan. You go to the bank, you get a loan. However, getting a loan for your business is a little bit different than getting a loan for yourself. When you're financing your company with debt, what you're doing is you're taking out a loan from the corporation. Now remember, if you set up your company as an LLC or a corporation, any of the different types of corporations, then your company is legally more or less a person. And that person has a credit score and can take out debt. It totally can. However, just like a newborn can't take out a mortgage, neither can a very new company take out a whole bunch of debt. Not only is that a bad idea, but it's also very hard to get a bank to say, oh, you're a brand new company and have no history of anything and no money. Sure, we'll give you money, why not? That's unlikely to happen, but it can be done if you're willing to jump through a couple of hoops, that's all. So let's talk about how that process works and you can decide if you want to go down that road. In my experience, I've never done debt financing. I have taken out loans. So one of my companies, we did straight up equity financing. Another one of my companies, my main company, Slam Academy, we've done bootstrapping, which we'll talk about soon. However, at Slam Academy, not that long ago, just about a year ago, we took out a reasonably big $40,000 loan to do a really big advertising push. So that's not the same as debt financing. That was just a loan to do a new thing. And I only did it because I knew that we could pay it back in four or five months. And we did. So that's all paid off now. But taking out a loan to grow your business is different than starting your business off by taking out a loan. Because the main difference is that it was easy for Slam Academy to take out a loan because we had a credit history. By that point, we had been in business for about four years. So that's three years is kind of the magic number for that. But we'll talk about that in just a second. Okay, let's dive in and talk about the nitty gritty of debt financing.
