Thinking about applying for a small business loan? Before planning your next move, you should ask yourself one question: Will this loan help my business grow and expand?
If the answer is a 100% yes, then don’t hesitate to apply for one ASAP. But if the reason for your loan application is to cover up a larger financial problem, you definitely don’t need to take on any further debt. Other than that, here are some of the reasons why you SHOULD NOT take out a small business loan:
You’re unable to pay your bills.
Applying for a small business loan to pay your bills seems like a great idea, right? Well, not so fast. If you don’t know when you’ll have a steady flow of income, then you’re in for a disaster. You may be able to pay this month’s bills, but what happens during the succeeding months?
What You Can Do: You might want to consider invoice factoring if you have invoices due and you’re expecting payments to come in soon. Invoice factoring is a loan against your pending invoices. It’s a quick, short-term alternative if you have cash coming in but you need to pay your expenses now.
You plan to cover personal expenses.
A small business loan, as the name implies, is designed to help fund your business – not your lifestyle. The money you get from taking out a loan should be invested in areas of your business that will help you recover the costs of the loan. If you use the loan to pay for personal expenses, obviously, your business won’t benefit from it.
What You Can Do: It’s important to be economical when dealing with personal expenses. Do you really need a new pair of Nike shoes? Do you make use of your cable account or you don’t even watch enough TV? It helps to cut down on expenses and live within your means.
You were “pre-approved”.
If you’ve ever received junk mail flyers that say, “Congratulations! You’re pre-approved for a $500,000 loan,” you’re not alone. While these loans are from legitimate lenders, you’ll find that these loan offers usually have high fees and interest rates.
What You Can Do: When looking to apply for a small business loan, you can start with a bank you already do business with, or with other reputable private lenders.
When taking out a business loan, it’s important to have a plan to pay it back. And make sure you specifically know where to allocate these funds to grow your business. Also, only borrow what you need, with a small buffer.
Should you apply for a small business loan? The team of professionals from SMB Compass will advise you whether you need to take out a loan or not. If you do need one, we can help your business secure the funding it needs for growth and expansion. You can contact us by phone at (646) 569-9496 or email us at email@example.com.