Almost every business on the planet had to borrow money in order to get itself off the ground and debt in the world of business is perfectly acceptable. What must not happen however is that you take on more debt that you can manage. I have a good friend who works for Sertant Capital, a company which loans money to businesses in order for them to buy equipment, and he has told me some very sad stories about a number of businesses who took on too much debt.
This year has showed us that some businesses had far too much financial exposure and that is why they had to close their doors when the pandemic hit. This lesson was a tough one for many to learn, but we can all learn from it. If you are looking to borrow, here is what you should be thinking about first.
What You Are Spending The Money On
The first thing which you ought to be thinking about when you are going to borrow money is exactly how much you are going to be asking for. In order to work out how much you are asking for, you need to first know what you are going to be spending the money on. This could be new premises, money for equipment, research and development or perhaps even for marketing or a mixture of all of these. The only reason why you need to know what you are spending the money on is to cost it out, so that you will know how much to ask for. This has to be precise.
The issue with so many businesses is that they are often guilty of plumping up their business’ value and income in order to be able to borrow more money. The big danger of this of course is that if you have a couple of rough months, which anyone who works in business knows can happen, then you are going to find yourself in a position whereby you cannot pay that debt. When you are taking on a loan or funding you have to ensure that your business can easily pay back the monthly payments, not ‘just’ pay it back, easily pay it back. This way you will always be able to afford the payment.
Who You Are Borrowing From
Your business should only be borrowing from a legitimate financial institution such as a bank. If you have bad credit and you can’t get the money, don’t ever go and seek other loans from unregulated financial institutions. This will lead to more harm than good for your business and there are many who have been forced to close their business after getting into bed with the wrong people. Always make sure that any financial dealings which you have, including the lending of money, is done above board and fully regulated.
Debt is fine, but bad debt will kill your business in no time at all.