When To Consider A Business Loan?

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a blog featured image with a topic title When To Consider A Business Loan?

To grow your business, acquiring liabilities is inevitable – especially current liability which may include business loan and trade credits. While unavoidable, you must know how to manage your assets and liabilities effectively. To be able to juggle both well and still profit on the side is what it means to be a successful trader.

Today, let’s talk about one of the most common liabilities companies have – Business Loan.

 

What Is A Business Loan?

Just as the name suggests, it is a loan that is intended for business use. There are all sorts of lenders or financing firms that can help get you started in the world of trade. If you meet the requirements, you can start a business of your own without having to spend so much from your pocket. Business loans, in other words, can help you start or grow your business.

Starting a business with a business loan

This is possible for proprietors, partnerships, or corporations that can put up good collateral to bind with the loan agreement. The one to avail a start-up loan is most likely a sole proprietor with a property or two to his name. Most corporations have investors to back them up, so it is seldom for them to apply for business loans until later years. Most banks and financing firms accept real estate properties as collateral.

Growing a business with a business loan 

This is when established companies or small and local businesses borrow the money they need to take their trading activities to a whole different level. The business has already been founded, and now they want to further their influence or reach by developing new products or opening new branches. Companies that have been operating in the market for a significant amount of time have higher chances of getting approved for bigger loans, especially if they have excellent credit history and proof of income.

 

Should You Consider Applying For A Business Loan?

To figure out what your specific answer to this question would be, you have to ask yourself:

  1. Why do I want to apply for a business loan?
  2. Will I be able to generate profit from this loan?
  3. Will my earnings cover even loan interests?

You see, it’s very easy to borrow money. However, it can also be very challenging to pay it back. Banks, thus far, have some of the lowest interest rates. Financing firms are not lagging far behind either. There are several sources that you can tap whenever you feel like applying for a loan for starting or growing your business. The real concern is whether you are capable of paying it back – with interest.

 

No matter how competitive loan rates are, interests will never be zero. So before you even consider signing those loan documents that will ultimately bind you to pay off interest rates, you have to be sure that what you’re planning to use the money on will generate enough income to do three things.

  1. Pay the principal amount
  2. Pay off associated interests.
  3. Generate profit for the business.

 

If you’re not very confident that you’ll meet these three with your current business plan, you may want to rethink the loan. Otherwise, you will exert twice the effort to pay off the loan, and you will hardly generate any profits from it either.

Also, other considerations to take into account are outstanding loans that you may already have and your sales forecast for the upcoming months (or at least during the loan amortisation period).  

Remember, a business loan can bring a lot of merits for your company. It can open up a lot of possibilities, especially where product development and expansion is concerned. However, it can also quickly turn the tables away from your favour so you must exercise careful planning. If you need more advice on this matter, maybe we can help you out. Contact Annette & Co. for great insights! You can also follow us on any of our social media channels and subscribe to our YouTube channel.

         

 

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Annette Ferguson

Annette Ferguson

Owner of Annette & Co. - Chartered Accountants & Certifed Profit First Professionals. Helping Online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.