18 Jan What to consider when you’re getting a business loan
It’s not just home buyers that we service. It could be that you’re seeking a business loan. Anyone in business will tell you that getting into debt is a risk, but if you’re a small business then you may be short on start up capital and you may need the cash injection. There are therefore some things that you need to consider before you take out your loan.
1 – Firstly, do you really need that finance or can your business operate with it? There are some people who are of the belief that you should never take out a loan unless you absolutely need it. So first, before you go through the application process, ask yourself if you need it and if there’s another way to source the finance that you require.
2 – If there isn’t then ask yourself what the loan is for. Some people will say that one of the worst mistakes you can make in business is to take out a loan for operating costs. This is because it shows that your business isn’t in a good state. The other issue with taking out a loan for operating costs is that when you’re in business, cash flow is always going to be an issue. You’re never going to have enough money and there is always going to be an expense.
3 – So that would lead to the question, are there any cut backs you can make? Can you switch to a cheaper supplier and can you increase your prices. Nobody ever wnats to increase their prices but sometimes it’s essential so that you can keep operating. The problem with increasing your prices is that you may lose customers, but on the flipside, you may end up making more money for the same amount of work and that would put you in a better position.
4 – Returing to the question of cashflow, the big thing that businesses need to ask when taking out a loan is, “can I afford to pay back this loan if I have a quiet week?” Only you will know the answer, but if you’re a start up, this is a harder question to answer and you may find yourself stuck.
5 – Can the item/items I require finance for wait? Or do I need them now? If you don’t need them now, then try and cut your costs and wait to avoid taking out finance.
If you really must take out a business loan, then shop around for a loan with the cheapest possible rate. Often brokers can get you a better rate than you’d be able to if you searched yourself.