Questions to ask before borrowing money for your small business

By Victoria Lawes

Starting your own small business is a huge investment. Those who think otherwise are quickly disabused of that notion. Even if you pass the initial stage without any real financial worries, there comes a time when you need to make a tough decision about whether you should borrow money for your enterprise. Loans can be extremely beneficial for the further development of your business as well as potentially setting you up for expansion and growth. However, there are a few questions you want to check off your list before you make the final decision.

Do I really need to borrow that money?

Borrowing money isn’t the only way you can acquire funds for your small business. There are other alternative methods you should explore first. Investors are, of course, the best case scenario, but if your business isn’t showing any signs of growth, you’ll have a hard time attracting those. Pre-purchases, paid beta testing and fundraising are all viable options, especially if you’re a tech startup or into anything IT related. If none of these are viable for you, then I guess borrowing money truly is your best bet. Just make sure to think through the reasons you want to borrow money, and is it really worth it. Will it promote growth or help your business in the long run? Borrowing money for short-term goals that won’t amount to much or provide any benefits for your business is a poor decision to make.

How fast do I need it?

Another important question you want to ask yourself is the urgency of the situation. If there’s no real rush, you can apply for a loan from a bank, as the process is somewhat lengthy, and it will take some time before the bank decides whether you’re credit-worthy for the loan. If time is of the essence and you, for example, have a unique business opportunity in front of you that you simply can’t miss out, like getting some equipment dirt cheap as a limited-time offer, then bank loans aren’t for you. In those situations, you should look into fast loans and find the right option before the timer runs out. That way you’ll actually be saving more money in the long run if you make a shrewd investment.

How much do I need?

This is an important question and it’s usually overlooked. You want to make a precise projection of the amount of money you’re going to need for your endeavor. Trying to squeeze out as much money as you can from your lender means that you don’t have a real idea what to do with it, and it’ll show. In addition, you’ll probably spend more money than you actually needed and, in the end, you still have to pay it all back. Therefore, get those spreadsheets out and do some math first. You don’t need to account for every single penny as things could end up costing more than you thought, but you also don’t want to go overboard with your calculations.

Can I afford it?

Lastly, you want to make sure that you’re even able to pay it off in the first place. Having a good credit history will not only make it more likely that the lenders borrow you the money, but it also means you’re not up to your neck with debts. If your credit history is not perfect, consider the growing practice of peer-to-peer lending. Just keep in mind that your iffy credit history may mean you’ll may pay a higher interest rate than a bank would charge.

Next, if your business is just starting out, there’s always a chance things might not go according to plan. Therefore, you’ll be risking a whole lot of money you may not be able to pay back anytime soon. So, make sure you have a plan B ready to fall back to if things go horribly wrong. Remember, you need to be able to pay off that debt even without your business, to stay on the safe side.

All in all, if you’ve gone through all of these questions then you’ve already made your decision on what should be your next move.

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Victoria Lawes is a digital marketing strategist. She works with driven, creative, and passionate entrepreneurs and small business owners that want to bring their visions to life. She is an enthusiastic writer who follows latest marketing and technology trends to get a glimpse of the future. Contributor at bizzmarkblog.com.

 

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