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Key Idea: Use Money to Borrow Money

The Schroeders were able to get a loan to buy this building by using their own cash as collateral.

Key Question:


Most companies get started on less than $10,000 and those funds typically come from personal savings or a family loan, not a bank. The fact is there is no such thing as a startup loan from a bank.

Where did Carol get her startup capital?

From the bank, but not really. Carols parents saved money to pay for her college tuition. Because she completed school in three years, they gave her the money she did not spend on a fourth year. Rather than use that cash to make a down payment on the building and purchase inventory, she borrowed money against it. By using the cash as collateral for the bank loan, she had easy and quick access to it in case of an emergency. Yes, she did have to pay interest, but interest on mortgage loans is tax deductible.

When he was eleven years old, Bill Tobin borrowed his mother's credit card to buy a lawn mower. He has since started and self-funded nine companies, all out of retained earnings from that first business.

Tom Gegax and his partner Don Gullett each put in $15,000 to buy three gas stations, their vendors helped at first. Don borrowed the $15,000 from his parents and Tom used a retirement fund. For growth funds they tried a bank. Judi Jacobsen and her first partner each put in $200 to print their first group of greeting cards. They took no salaries the first two years.

Marty Edelston thought it would take $1.2 million to start his publishing company. When he couldn't find any investors or banks to put up the money, he kept his job and used $30,000 of his own money to get started.

Grace Tsujikawa-Boyd is an artist. While working full time, she started making pots in her basement and people actually bought from her immediately. With her confidence buoyed by sales, she went looking for money. A friend told her about SBA-backed loans and she went through the process to qualify.

Cheryl Womack didn't need start-up capital because she had startup customers. But, she kept her overhead low by working in her home with one phone line and call waiting. She had established herself in the insurance business; and when she got the idea to start the National Association of

Independent Truckers, many of her old customers followed her.

Jeff Gordon and Geoff Allen lived at home and took little or no salary for themselves. Today they own over a million dollars worth of computers. Geoff Allen delivered pizzas for Dominos at night so he could have spending money.

The net of this? When it comes to getting started, you must be willing to step back before you step forward. You will take a risk; you will be betting on yourself whom, at this point in your life, should be a known entity.

You know what you want to do. You know what you know and what you don't know. It is not the same as gambling. But, if you're not willing to bet on yourself, you should not start a business. Startup money is hard to find, but not impossible. Don't think banks, think yourself, your family, your suppliers and potential customers.

Think about it

Do you need to learn more about leverage? Do you need to learn more about using other people's money to grow your business? Do you have a banker who has taken time to understand your business? Are their customers or vendors who would loan you money or invest in your future?

Clip from: Orange Tree Imports with Carol Schroeder

Madison, Wisconsin:  Meet a guru of specialty retail, Carol "Orange" Schroeder (just above). She is the author of the book, Specialty Shop Retailing,  and she truly walks her talk. With her husband, Dean, they started their business, Orange Tree Imports, soon after graduating from college. That was 1975.

Today Orange is a master retailer and a quiet hero in her community. She was an early leader in the movement to revitalize the old downtown. Soon after buying the building on Monroe Street, Orange organized a neighborhood business association to do joint marketing-and-promotion to change the orientation of their old shopping district to be a vital area for specialty shops and restaurants. That worked miracles. Monroe Street now draws people from well beyond the neighborhood, even Wisconsin!

Go to all the key ideas and video of this episode...

Orange Tree Imports

Carol Schroeder, Founder

1721 Monroe Street
Madison, WI 53711

Visit our web site:

Office: 608-255-8211

Business Classification:
Specialty Retail

Year Founded: 1975

Use Money to Borrow Money

CAROL SCHROEDER (Orange Tree Imports): It was always my dream of owning my own store, and it just came true a little faster than I expected.

HATTIE: Now wait a minute, where did you get the money to just buy this business? How old were you?

CAROL: Oh, I wasn't very old . . . about 21 or 22 years old; we had some money saved up. And we were also able to borrow some from the bank.

HATTIE: You were 21 and you had money saved?

CAROL: Well, actually, my parents had saved money to help put me through college, and I skipped a year, so they were very kind and let me use some of the money that was saved.

HATTIE: Now I get it. You compressed your college education; that's great. So you started your business with leftover college money.

CAROL: Actually, what we did was we pledged that money as collateral and borrowed money against it, so that when we needed money later and were done using it as collateral, we had a little bit more cash.

HATTIE: That was smart. (Voiceover) Orange and Dean started with furniture imported from Scandinavia, but through the years they've listened to customers, watched trends and formed a deep understanding of the marketplace they serve.

CAROL: When we took over the store after six months of running it, we decided to get rid of the furniture. It was heavy and very difficult to deal with, and we'd have to carry it up by hand from the basement. So we got rid of the furniture. We only had gift and Scandinavian accessory items and a little bit of kitchenware.

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