If you run your own business, there may come a time when you need to borrow money, and this is a very normal part of running a business.
But is a loan the right option for you? And if it is, how should you choose the right source of funding?
Here’s a guide to help you.
Possible Alternatives to Borrowing
Before you decide to take out a loan, you may want to look into your other options, one of which is using your own savings.
If you are running a new start-up, this might be a good option. Indeed, many start-up owners use their own money when they are getting up and running. This also shows that you trust your business and that you are confident in it, which is a good sign for potential investors.
Another issue to consider is whether you can improve your cash flow. If your need for funds is due to bad cash flow, you could implement some changes to help improve this.
For example, you could improve your invoicing system, which might involve following up with late invoices immediately and offering discounts for prompt payment.
You should also make an effort to save up when times are good, especially if your business is seasonal. This will help you to cover slow periods at other times during the year.
You might also decide to use a credit card, which is useful for funding your business in the short-term. It’s not a great long-term option because it can be very expensive, and you will want to make sure you can pay it off quickly, but it can still be a useful option.
Can You Afford a Loan?
If none of the above solutions are right for you, you should decide whether you can really afford to take out a loan. Most importantly, will you be able to keep up with the payments?
Don’t take a loan if you are not sure whether you can pay it back because that could cause serious problems for your business.
How to Choose a Loan
If you decide to take out a loan, you will want to carefully consider the costs involved. There are many places where you can find loans, and some business loans will have better rates than others while some may be easier to get than others.
You might find that the bank is unwilling to lend you money, but you may be able to get funds from elsewhere.
You may want to learn more about business loans if you have bad credit, and this could be a solution for you if you are having difficulty getting funding.
The most important thing is to look around and compare loans. Work out how much you will end up paying back, research the lender and find out as much as you can before making any decisions.
Then only take out a loan when you are sure it is the right decision for you and your business.
Always Consider All Your Options
Never assume that a business loan is the only option for you because there may be other better options to consider first. However, if you do decide that a loan is the right option, always spend some time comparing the available options first to make sure you choose the most suitable loan for your business.
Kieran Heath started his business from his kitchen table, it’s grown from strength to strength over the years and Kieran is happy to share his story and tips on how to run, and grow, a business.
Before You Apply for a Loan
Before applying for a loan it is a good idea to work on your company credit score to ensure that it is in good shape, if you put effort into improving your company credit score it can have many benefits including increasing the amount that you can borrow and often at more favourable terms.