How To Borrow Sensibly For Your Business

When you run a small business, there will come a time when you need to borrow money to grow it. That time might be right at the very start before you find your first customer, or it could be when you’re ready to open up a new branch or buy better equipment. Whenever you need that money, you will need to work out how best to approach the people you want to borrow from, and how to do it without harming your business in any way.

Know How Much You Need To Borrow

It’s essential that you know how much you need to borrow before you apply for any loans from your bank, from an angel investor, or other means of funding such as immediate personal loans through this website. When it comes to borrowing sensibly, only borrowing what you need and no more is the best option. It can be tempting to borrow as much as the lender will give you, but this can cause more problems than it solves because you will need to pay it all back (with interest) so borrowing as little as possible means you’ll be paying less back, helping your cash flow.

Another reason not to borrow more than you need is that you could end up spending the additional money on equipment you don’t need or marketing ideas that aren’t going to work and bring you a profit. If you only have the money you need, you will be a lot more careful when it comes to spending it and take more care to carry out the right level of research first. Of course, if you work out what you need to borrow and then manage to save money in the process of buying the items (perhaps they are now in a sale, or you manage to negotiate a good price), then the money that is left over should be put to good use.

Understand The Terms

Every loan you get, every cent that you borrow, will have terms attached to it. These terms dictate how long you have to pay the balance back, what interest rate has been set, how much you will be paying each month, and what happens if you don’t or can’t pay the money back when you are meant to. Make sure you read through all of this information before you agree to anything because these are the things that can make a big difference.

You will need to incorporate any fees that you need to pay to set up the loan into your accounts and make sure you have the money to do it, plus you’ll want to bear in mind any charges that will be brought if you pay off the loan early for any reason. It can often seem like a good idea to pay the debt off as quickly as possible, but when the penalty is a high one it can be better to wait and continue to pay the debt as normal.

If you have any trouble understanding the fine print when it comes to a loan agreement or an angel investor’s requirements, it’s vital that you speak to someone who does understand such as a lawyer who specializes in business contracts. They will be able to reassure you that what you are signing is legitimate and give you peace of mind.

Know Your Options

When you want to borrow money for your business, you need to know all the options open to you. Don’t assume that a business loan from your bank is the only way forward, and don’t get too disheartened if your bank turns you down. Remember that they have very stringent rules, more so than ever since the financial crash of 2008, and just because you don’t meet their criteria that doesn’t mean you won’t meet anyone else’s.

Do some research into the best options available to you. Although you may have wanted the loan, another way of obtaining the money might work better. Would a personal loan that the company pays you give you a better deal, for example? Would an angel investor give you more insight into the industry as well as the money you need to grow and thrive successfully?

Have A Plan

We’ve already touched on the fact that you need to know how much you want to borrow, and that means you need to know exactly what you want to buy. Make a list, as you would if you were going grocery shopping, and split it into two parts. The first column should be the items that you definitely need in order to grow your business. The second column should be items that you would like to have but aren’t entirely necessary if you can’t get the money for them. Having this information is a great start, but there is more which you need to know.

You will need to plan exactly how and when you intend to buy the things you need, detailing the cost out down to the last cent. Not only will this help you with your budgeting, but it will also show the person you are hoping to borrow from how serious you are and how well thought out your ideas are.

Don’t Let Things Get Out Of Control

If you over borrow or you’re unable to pay back the money that you were lent this could mean that you have let things get out of control. To stop this from happening you need to stick to your budget, and if you go over in one area, you’ll need to cut back in another. This can be hard to do, but it is also a useful exercise that you can use in all areas of your life. As with anything, practice will help you when it comes to budgeting and spending, so if you are careful at the beginning, there is no reason why you shouldn’t be able to pay everything off and enjoy a productive, profitable business that will continue to grow.