Is it Wise to use Business Loans?

By admin

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.