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Is it Wise to use Business Loans?

A lot of businesses use loans and if you have a business then you might consider whether a loan might help you as well. The best place to start is to put together a business plan to consider how the money might help the company.

What to look for in the business plan

You will need to think about what the loan will do for you and whether it will be worthwhile. All loan cost money and it is good to calculate this cost. You will also need to be aware of how much you will need to repay and when. Then you can start to work out whether the cost is worth it. Calculate the benefits of the loan and whether you think that the growth your business will see as a result will be enough to cover the costs of the loan. You also need to think about whether you will be able to afford the monthly repayments. The loan might help you in the long-term and you may not see much financial benefit in the short term. However, you will still need to make sure that you can cover those costs in the short term. Look at your accounts and see whether your business will normally have enough money to be able to cover this cost. If you do not then you will have to think about whether you can cut back anywhere else to get enough money.

Have a contingency plan

If you do have the money to pay the loan, then you will probably be thinking about going ahead with it. However, it is worth having a contingency plan just in case. If you miss repayments on the loan then you could end up getting into serious trouble and the business might even go under. Therefore, it can be a good idea to think about whether you can come up with a back up plan if this happens. It might be that the business has some savings that could be used (although it might be better to use these instead of using the loan) or you may have some personal savings that you could use. Although bailing out your own business is not ideal, it could be helpful as a back up plan.

Consider the risk

It is really important to think about the risks. It can be so easy to concentrate on the benefits of the loan. Thinking about what the money will be used for and how much it might be able to help. However, there is always a risk with borrowing and this is as important in business as it would be with a personal loan. Consider what might happen if you cannot repay it and what knock on effects that might have. If you have employees it could put them out of work, it could mean you do not have money to buy stock, pay rent or things like this. There are all sorts of possible outcomes and it is well worth thinking about them. It might seem really negative, but if you can prepare for the worst then you will know whether you can take on the risk of the loan or not.

The positive side

Of course, it is well worth thinking about the positive side as well. A business loan could help you to achieve many things. It could help you to afford more stock so that you can potentially sell more. You might use it to employ more staff, improve your advertising, get bigger premises or many other things. If you have to wait to use profits to pay for these things it may take a lot longer. IT might mean that you will not be able to keep up with demand and could even lead to customers going elsewhere to buy things and you could lose out on business. You will therefore need to try to find a balance You will need to balance out the positives with the risk and that should help you to be able to decide what will be the best thing for you to do. It may not be easy and it could be worth discussing with others. If you employ people then perhaps talk to them about it as they will have the best understanding of how a cash injection could help the business. It could though, also be worth talking it over with people outside of the business. They may be less likely to be biased as they have no emotional attachment to the business and they might be able to help you to make a clearer decision. It can be a big decision and so it is worth taking some time to discuss it and think about it as once you borrow you will not be able to change your mind about it.

What are the Alternatives to a Car Loan?

There are many people that will find that when they need to buy a car they will consider getting a loan to pay for it. Although car loans can be extremely useful, it is worth considering alternatives before using one. There might be some alternatives which are cheaper or better and unless you have considered them and thought about what will work best for you, you will never know whether you have made the right decision.

Savings

The cheapest way to get the money for a car is to use your savings. This might sound odd because most people earn some interest on their savings but this is usually a very small amount. The cost of loans tends to be much higher than any interest that can be earned on savings. There may be a few exceptions if you have a savings account that pays a high rate of interest, such as a fixed rate bond or notice account compared to a very cheap loan. It is worth checking, but normally loans are dearer.

People can find it hard to part with their savings though. Sometimes they would rather borrow money than use savings even though it costs more money. This could be for a number of reasons. It might be because they are saving up for something specific and they do not want to lose that money as they will have to start saving up all over again. It might be that they worked really hard to save the money that they saved and they do not want to forgo those sacrifices to buy a car which they could get a loan with no credit check for. It could be that they like to have some savings to fall back on in emergencies. However, these are not really logical reasons and it is wise to think about the fact that using savings will be cheaper. It would be better to use these and then set up a direct debit to pay the money that you would have had to use to repay the loan, into your savings account. Then you will replenish your savings but if you struggle at all financially you can cancel that direct debit or transfer some of the money out of the savings account.

It can even be wise to start saving for a car as soon as you buy one. Eventually you will need or want to replace that car and the sooner you start saving up the better. If you are repaying a loan on it, then you may not be able to save much, but even a little bit will help and you can increase the amount that you are saving once the loan is repaid.

Personal loan

Getting a personal loan could be a cheaper alternative to a car loan in some cases. It is worth comparing the cost of it as you may find that it will be a good alternative. You should be able to borrow the amount that you need as well. It is worth making sure that you look at the repayments though, as well as the cost. Think about how much you can afford to repay on a loan each month and make sure that you will be able to afford this, whichever type of loan you decide to go with. Depending on how much the car is, you may find that others orts of loan may also be useful for buying it with. You may be able to use a credit card or overdraft if it is a really cheap car, but these tend to be more expensive than car loans.

Mortgage

If you have a mortgage and the value of your home has gone up since you took it out, you may be able to borrow more money on it. This can seem like a really good idea because mortgage interest rates tend to be lower than those for car and personal loans. However, a mortgage is repaid over a very long period of time. If you are at the beginning of that period then you could end up paying a lot of interest on that loan as you will be paying it for so long. Try to calculate the costs so that you can compare the different loan types. You may also find that if you increase your mortgage burden then there is a bigger chance that you might miss a repayment at some stage. This is risky as if you miss too many repayments then you might find that your home is repossessed. You do not want to end up homeless just because you want a cheap loan to buy a car. It would be better to take the car loan, using the car as collateral and risk having the car repossessed than risk losing your home.