You may think that taking out a loan to finance your new business is a bad idea, but you could be making a mistake with this approach.
Business finance is a complicated process that requires plenty of thought and planning, however in the right circumstances and done in the right way, it can provide the kind of kickstart that your business might not be able to afford to do without.
Here are some reasons why taking out business finance can be a great idea:
- When you need capital for your business
Every business must have capital, and if you do not have the cash in hand, then you must look for an alternative means of getting the money. It could be that you just cannot get your business off the ground without additional capital. This is a worthy reason to seek a loan.
You must also be able to provide what your customers need and expect. A business without stock, staff and the equipment required to get the job done cannot do business, so if you find yourself falling at this first hurdle then you should also consider giving your business a finance kickstarter.
Capital by way of an investment to get your business off the starting blocks is usually treated as an asset, even though you acquired it in the form of a loan. It will, however, appear in your income statements both as an asset and a liability because this is money that you must pay back.
Because every business must have the initial capital it needs to get going, getting this money through means of a loan, is not a bad idea.
- To buy much-needed equipment or to make improvements
Sometimes in business you may need to acquire an asset that is crucial to the operations of your company. Similarly, you may have out of date or faulty equipment that must be replaced or repaired in order for you to be able to carry out the work of your business.
If the asset is expensive and your company is not in a position to be able to finance this asset from savings then it makes total sense to source financing for this item elsewhere. Otherwise, you risk the operations of your business shutting down or becoming inefficient and costly.
Because the value of the asset acts as collateral in the event that you default on a loan, banks may be more sympathetic to your request than you might assume. As they have a way to recover their money that is easily identifiable, it means the loan is less risky to them.
These are commonly granted loans, and you must not be afraid to seek funding support for this purpose.
- When you have a great business idea
Lenders love great ideas! Without them, they wouldn’t have a source of income, so again, don’t be afraid to take your good idea to the bank for support.
You will need to do some careful thinking though and evaluate whether the benefits of funding your new business idea by way of a bank loan or angel investment, outweighs the cost of being in debt. Are you able to make the repayments comfortably, and are you going to be able to make sufficient money from the venture to make it viable?
Business financing is a costly affair, and in most cases, if it is a new startup, the lenders will require you to put up some security before lending you the money. As such, you must be willing to give up something else that you own in the event that your business does not succeed as planned and you cannot pay the investment back.
Therefore, take your time and think carefully about the business idea you want to launch. But if you have a golden idea and the vision and skills to execute it, go for it! And take that vision and those skills with you to the bank to convince them how golden your idea is too!
- When you need to add to your inventory
If you are in the process of starting a new business and you realise that your inventory is not satisfying customer need, then it can be a good idea to ask for help to fund an expansion of your stock lines.
Inventory refers to what you are selling – which is the core of your business. Businesses who don’t have enough of the right products at the right time will not be able to succeed; it’s as simple as that. Customers will tire quickly of not being able to find what they need and there’s only so many times you can ask them to wait patiently for it. Particularly if your competitors do have what you don’t.
If you require investment to boost your stock and increase your turnover and your profits, then this can be a great reason to request a loan.
- When you need to change your business location
Maybe your business is suffering because it’s just not in the right place. Perhaps new parts of town have become hubs for your kind of business and you’re missing out by not being there? Perhaps you’ve outgrown your current premises. Whatever the reason, if you’re looking to move location, you may need some financial help to do so. This is a great time to ask for finance and kickstart your business to the next level.
Conclusion
Getting a business off the ground requires many things, but one thing’s for sure, you won’t get far without finance if you need any of the above. It is important to do your research first however and ensure that you will not struggle to pay back any of what you borrow. Taking out a loan should never be done lightly, but with the right plan in place and the right business strategy, financial assistance can be the difference between success and failure, and who would choose failure?
