So knowing when to borrow money to expand your business is maybe the most difficult question to answer ever, when it comes to smaller and medium sized business.
And there are so many variables that needs to be taken into consideration before borrowing money to grow the business.
And if you get it wrong it can mean that you will lose your business in a few years.
And we will list the things you should really consider , before ever borrowing money to grow your business.
Nr1: What would the terms of the loan be for your business?, this one is very important because if you can borrow money at a good rate , then it makes the payback process much easier. There is a huge difference between a 8% rate and a 15% rate when you look at a payback table of let us say 10+ years.
Nr2: Most of the time you need to put up your business and maybe even your home as a security to the lender, and this also means that you should never borrow unless you have a crystal clear business plan in place, and also that you have had an outside company look at the business plan based on your competition you face for your service or products that you offer.
Nr3: What happens if you get sick along the way, can somebody-else run the business?, this one is huge because we can not tell the future so if you borrow money based on that you can operate the business, then you need to look at what extra add on insurances you can take if you get sick, so if you cannot repay the loan so you and your family dont end up on the streets!.
Nr4: Do you need to invest on personal or is it just in to you stock and added machinery, There is a huge difference in what the loan is spent for, if you spend money on stock then it is more of an asset, if you buy machinery to maybe automatize some things that is also an investment, but if you spend on adding sales reps and add costs and so on, then it is an expense that can be very risky for your business.
Because if you do not get the added sales affects by adding sales reps and doing marketing then you are in trouble, and with a loan to repay.
Nr5: Due diligence is a word that is taken way to lightly by a lot of business owners before they enter into debt, the most important thing is to now your numbers and to know exactly what the money should be used for down to every penny before you even are thinking of borrowing the money.
We are not trying to scare you , but we are trying to warn you about the fast-lane of credit and loans for small and medium sized business these days.
A lot of small and medium size business go under because of one bad loan that they have taken out to lightly.
This just a matter of fact, and this fact needs to be respected.
Thank you for reading.