There are several ways of collecting funds for your business. You can either decide to solicit funds from friends, potential investors, or even go for a loan. The method you choose depends on the readiness of the financier to advance the much-needed funds to you. However, you need to be extremely careful when going for business loans. It is wise to do a critical analysis of your business so that you don’t end up making the wrong decisions. Here are some of the factors you need to consider while choosing to fund your business through a loan.
- Ability to Pay
As you take a loan for your business, you must remember that it is the responsibility of the business to service that loan. You don’t have to be getting money out of your business to pay for that loan. Do a proper assessment of the performance of your business and make sure that it can accommodate the installment without straining you as the investor. There is no need to take a loan that you are sure it will give you sleep less nights.
There are several individuals who have sold their valuable assets to meet their loan installments. The primary reason of taking a business loan is that it should add value to the entity. You should be able to repay the loan and remain with something to save or re-invest back to the entity. Therefore, the ability to pay is a critical consideration when searching for funds for your business. You can take a loan that may end up being a liability to your business if you are not careful. Ask yourself whether the loan you are taking will add value to your entity before you go ahead and secure the funding.
- Understand Your Business Patterns
Most businesses have booming and low sessions. You need to understand the business cycles of your enterprise so as to come up with an appropriate repayment schedule. You can always make prepayments during the booming seasons so as to cater for the shortages in the low seasons. Most business financiers will tell you that they give out character loans. The Implication is that you need to take a personal responsibility when it comes to the repayment of the loan. Start by understanding your business cycles so that you will plan for the repayment. The financier may give you a fixed repayment plan but it is your responsibility to match that with the performance of the business. No wonder most banks will only fund a business that has been in operation for at least six months. They want to be sure that you understand the full operation of the business.
- Do You Have an Alternative Source of Funds?
As said earlier, the business should be able to fully repay the loan. However, you may find things not moving as expected at some point in life. You don’t want to destroy your credit score because of arrears. Always have an alternative source of funds even if it means returning the money back after everything gets back to normal. The computer system will not know that you have a few challenges and that’s why you delayed to submit the loan installment.