Think using debt to fund your small business is a good idea? I have a great counter-example for you, Koko Gumi. Koko Gumi (a Japanese construction firm) was the worlds oldest continuously operating company, and had been in business 1,400 years. Yes, they have been a family business since the 7th Century and are having to shut their doors. Why? Debt, of course.
You see, in the 1980’s, the company borrowed heavily to invest in the inflated Japanese real estate market. It was an opportunity too good to miss, they thought. The bubble burst, and they were in hock up to their eyes. Then, demand for their services diminished (they are specialists in building and restoring Buddhist Temples) and they couldn’t keep afloat.
The 1-2 punch of debt and hard times is too much for almost any business or family. You can’t predict when hard times will come, but you can influence how hard they will hit you. By preparing with a generous emergency fund and keeping out of debt you can make sure that your head stays above water, no matter what.
If you are interested in learning more, Business Week has all the sad details.