If you have a business then you are probably always looking at possible ways that you can expand. It might be as simple as wanting to afford more stock to sell or to employ more staff or to expand your premises or buy more manufacturing equipment. The costs will vary depending on what you do in your business and how much you want to expand. There are various options for funding an expansion and it is worth taking a look to see whether a business loan will be the best option.
Grants and crowd
Some businesses choose to make money from applying for grants or getting crowd funding online. Although these can be useful ways to make extra money it can be difficult. You may need to have a very specific purposes to make money through grants and for crowd funding you need to be able to give people a good reason to donate money to your company and you need to give them something in exchange for their donation if you are successful in raising the full amount.
If the business has savings then these can be used to pay for the expansion. Many businesses do not have savings, but it can be a wise thing to accumulate. Rather than keep using profits to pay back into the business, some should be saved so that they can be used for larger purchases such as expansions. It might be wise to start saving form now on so that you can accumulate the money that you need rather than getting a loan. Although this will delay the expansion it will mean that you will not have to worry about the costs of the loan. Of course, it may be vital that you expand at this specific point in time so whether you can put things off will depend on your specific circumstances.
It can be tempting to think that it might be best to get a personal loan. This could be a cheaper or easier option than getting a business loan. The problem with using a personal loan is that it will not be associated with the business but with you personally. This will have an impact on your credit rating and will mean that if the business goes bankrupt you will still have to repay the loan as usual rather than being able to use the sale of the business assets to help towards repaying it. It could affect your chances of borrowing other money such as a mortgage. If you personally have a poor credit record you may not be able to get a loan or you may only be able to get an expensive one.
So a business loan could be the right thing to do if you do not have savings or the time to save up money and cannot set up a crowd funding account or apply for a grant. You will have to put together a business plan in order to apply for the loan which will enable you to look at your figures and calculate whether your business will be able to make the repayments for the loan. Affording the repayments is really important as if you cannot then you will get the business into debt. You need to be confident that not only will you be able to initially afford them but for the whole term of the loan so that you can ensure that it gets paid off. It is a big risk to take and you could be risking the future of your business so you need to be really sure that it will work out for you. Make sure that you are confident in the figures that you are forecasting and that you are looking on the more pessimistic side of things to be sure that you can cope even if things do not go as well as planned. It is worth also coming up with a back up plan of what you might do if you cannot cover the repayments so that you can use this if necessary. Hopefully it will be worthwhile and it is good to look on the positive side, but when you are planning you do need to make sure that you are realistic just in case and look at worst case scenarios. Imagine what you might do if money doesn’t come in or if payments come in late. Think about whether there are places that you can cut back, that perhaps you could start cutting back on right away so that you can have some money available to you in case you do not make enough in the month to cover the repayment.
Do make sure that you compare the different loans available and pick one that not only offers good value for money but has repayment amounts that you will be able to afford.