Funding is one of the most, if not the most important thing in business. Whether it is to start up the business or to keep it running - a good source of money is always needed. This is something that gives small business owners the scare of their lives.
One of the sources for business funding is getting loans. But the moment the word leaves your mouth, you’ll hear a thousand and one comments giving you different perspectives to it. There are the naysayers on one part, who will never see anything good come out of anything. Then, there are the cautionary advisers who are always looking for ways to play it safe at all times.
To these set of people, getting a loan always sounds ominous. Without taking anything away from their arguments, and always having it at the back of the mind that for every good thing, the bad sides are lurking around the corner; always look out for the best alternative for your business. If you think getting a loan is the best thing for your business at the level it is, then, please, by all means, do.
Just as there are always a million reasons to want to avoid debts as much as possible in a new business, there are as many good reasons to do so too. Highlighted below are some of the reasons why taking out a loan could turn out to be the best decision you could make for your business:
1. To Improve Credit Terms for a Larger Loan
Maybe, you are considering taking out a large loan in the future for the growth of your business, the best way to go about this is to start small. Take out a small, short-term loan, payback promptly and you’re on your way to be successful when you need a larger loan.
Being prompt in your payments of the small loan will make your chances to be successful in getting a larger loan easier. The fact that getting a bigger loan from a bank or a lender will attract a larger interest rate from someone who doesn’t have a good credit record can also be resolved with this idea.
In this case, though, you’ll need to be very careful taking this step because a late payment in any of the loan repayment can have a devastating effect when you’ll be needing the larger loan.
2. You Need To Expand
Your work space might start looking like it's going to bust open or maybe your clientele feel choked up in your startup physical location and you think you need to expand. This is a good sign that the business is doing well. Unfortunately, business growth doesn’t necessarily translate to you having the ready-cash for expansion. In this case, your best bet is to subscribe to a loan.
As it stands, expanding business will gulp up many costs such as new property acquisition, renovations, staff size increase, advertisements and more, and chances are high that unless you take out of your running capital, you might not have enough funds to cater for those expenses.
Taking out of the running capital will have a catastrophic effect on your business. So, the way out of the quagmire is to take out a loan. be aware that before you consider expanding, you’ll need to have done your homework on the area where you wish to expand to - will the area be good for the products or services you’re offering? Will you have enough customers there? Is the place accessible? All these and more are some of the questions you need to ask before committing to it.
3. Purchasing New or Upgraded Equipment
Every business has equipment that it runs with, maybe for the running of the business or for the use of customers. Most of these pieces of equipment are quite expensive and require money to run smoothly and for maintenance. Some of the equipment also wear out as time goes on which will require replacement or repair.
Maybe, you’re looking to replace your old equipment or you’re looking for an updated version of the equipment, you might not be ready for it. The best thing to do in that case is to look towards a loan to help you deal with it. At times too, pieces of equipment break down during operation, which will require the business owner to spend unplanned money. This might be for repairs in most cases, and sometimes, outright replacement.
4. Opportunities that are Difficult to Pass
In businesses, opportunities spring out of the blues. Some of the most important and excellent opportunities always come when one is least ready for them. This will now put the person in a dilemma as to how to go about it. When you get an opportunity like this and you know that the potential return on investment outweighs the debt the loan is going to accrue, it is best to go for it.
Be careful when doing your calculations in this case though, a lot of business owners are always overzealous in their calculations thereby, ending up overestimating their profits or underestimating the costs. When you’re in the situation where you need to make calculations for a business opportunity, be sure you’re basing your facts right rather than on just gut feelings.
As it stands, you’ve really weighed your options and you think what you need to do is to get a business loan, but people around you are still convincing you that its effect will be detrimental to the future or continuity of your business. Look at the options outlined above, if any of your reasons for taking out a loan falls within any of them, please, do make sure you go for it.
Be careful though, committing to unnecessary debts can have a very destabilising effect on small businesses. Therefore, be very sure that the steps you’re taking are the best ones for the growth and development of your business. Have a successful business life out there, folks!