Category: General


Is it wise to take out a Business Loan?

When you run your own business or if you are starting a business there are always a lot of potential costs that need funding. Sometimes there are so many things that you could potentially spend money on you feel you need to get a loan to afford them. Other times you have to get a loan as there is no way you can afford to pay for even the essentials without one.

Deciding on whether to get a loan can sometimes be an easy decision. If you need to expand or to start up and have nowhere else to get the money then a loan will probably be your only option. However, it can be worth thinking hard about whether there are alternatives such as You may be able to get crowd funding or some other sort of help which could be worth looking in to before you borrow money.

As with any loan it is always wise to make sure that the items you are buying with the loan are completely necessary. Make sure that there is not a cheaper alternative to those things as well. Compare prices and make sure that you only borrow exactly what you need. Every penny that you borrow will need to be paid back with interest so only borrow the exact amount you have to and nothing more.

If your business can grow, but only if you invest then this could be a reason for considering a loan. If you have the money in business savings then it would be much wiser to use that instead, but many businesses do have money put by. You will obviously need to put together a business plan for the bank, to convince them that lending to you is a good idea. Before you show them though, show other people. Not just people that you work with but friends and family as well. Discuss with them why you want the money, what you plan to do with it, how you think it will generate you income and why you think it will be worth it. People who are outside of the industry may see things from a different point of view to you and this will enable you to think it through from a different angle. It should help you to check whether you really are making the right decision.

You should also take a look at your competitors and what they are doing. See whether you think that you will still be able to compete with them of whether what you plan to do with the money will help you to get ahead. See whether they have done something similar and whether it seems to have benefitted them or not.

Think about the economy as well and how you think that might change your customers and their behaviour. It is not easy to predict this at all, but you can look at recent trends and consider what changes, such as a change in interest rates, might have. It may change spending patterns and behaviour which could impact your sales. If there is a risk that sales may go down then this could make it difficult to make the loan repayments and it may mean that you took the loan out at the wrong time. Consider what might happen if there is a turn for the worse or a turn for the better with regards to the demand for your goods and services and how you might cope with that. It is worth considering whether there is a reason to think that you might need money in the future and that if you have this loan now, you may not be able to get another one and so you may struggle.

You also need to think about the cost of the repayments. Find out how much they will be and calculate whether the business will be able to afford them. Consider what might happen if the interest rate rises and you have to pay more for each repayment and whether you will be able to cope with that. Think about what might happen if you cannot make the repayment and how you will cope.

You may feel that your business will not be able to continue without a loan, but it may not be able to continue with a loan either. It may be that you need to rethink what you are doing in your business so that you can increase your income without having to borrow money. Decide whether it is the right time to take this sort of risk and if you think that your business as well as you personally are ready to take on this sort of risk. Take a long time to consider it as it is a big decision with wide reaching consequences.