Financial Roulette

Is borrowing from your IRA a healthy risk or a tragic mistake?

Courtney McCain, 25, is at once an unlikely and highly likely entrepreneur. She's got half a college degree. She married an Air Force man and moved to a remote base in the Midwest. After being re-stationed on the East Coast, she separated from her husband and moved nearer to family and friends, where she went through a string of administrative assistant jobs. She excelled at each job but was ultimately bored and burned out. Now an assistant account executive with a public relations firm, McCain is on a decidedly professional track.

Public relations might be her calling...but, then again, it might not be. "I know that I've got the brains and the talent to be a success," she says, "but it has to be on my terms. My big challenge is to find out what it is that I'm good at doing. Successful people aren't successful just because they're smart. I think they're successful because they've pursued things in which they have natural talent."

For McCain, what seems to come naturally is consumer sales. And to test the waters, she's taken on a distributorship for Mary Kay Cosmetics in addition to her 9-to-5 routine. There are few downsides. Besides, if this is her true calling, or at least a calling, there's a lot of upside potential.

But when opportunity comes knocking, it usually has a price. As a distributor, McCain buys her makeup products directly from the company and marks them up, generally 100 percent. To make, say, $2,000 in sales, she must fork over $1,000 upfront. To make $10,000, it costs $5,000 upfront. In short, during her nascent career as an entrepreneur, McCain has come up against one of the fundamental challenges of business: It takes money to make money. Unfortunately for McCain, due largely to her age and a near-Bedouin existence over the past three years, she doesn't have any money.

The issue cuts deeper than simply not having risk capital on hand for a new venture. For hundreds of thousands of would-be entrepreneurs like McCain, there's no access to funds, either. There's nary a bank in the country that would lend her a dime. She can get a debit card, but not a credit card. And in McCain's case, a fierce streak of independence keeps her from asking friends and family for a loan.

David R. Evanson's newest book about raising capital is called Where to Go When the Bank Says No: Alternatives for Financing Your Business (Bloomberg Press). Call (800) 233-4830 for ordering information. Art Beroff, a principal of Beroff Associates in Howard Beach, New York, helps companies raise capital and go public and is a member of the National Advisory Committee for the SBA.

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This article was originally published in the June 2000 print edition of Entrepreneur with the headline: Financial Roulette.

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