
Should I use a Business Loan to Expand my…
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
funding
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.
Savings
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.
Personal Loan
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.
Business Loan
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.