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Home » What To Do Before Taking Out A Business Loan
Startup

What To Do Before Taking Out A Business Loan

adminBy adminJune 10, 20230 ViewsNo Comments3 Mins Read
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Sharmylla Siew helps financial strategies align with overall business objectives and goals as the CFO of Lending Valley Inc.

It is important to factor saving into your business plan; this doesn’t just help your business’s growth but also your business’s stability. Having savings at your disposal ensures that you can continue to operate your business without relying on outside sources of funding or incurring debt.

We all know unexpected events can impact your business. Events such as the Covid-19 pandemic have shown us that life is unpredictable and things can truly be out of our control. Equipment has a tendency to break down with normal wear and tear, or a sudden loss of a main client. With the security of personal savings, you create a buffer to handle such emergencies without disrupting your operations or enduring losses. Having funds ready and available ensures that you can quickly respond to any unforeseen circumstances and difficult obstacles.

Not knowing the profitability of your business and locking yourself into a loan or merchant cash advance with interest rates incurring debt for years to come can be a recipe for disaster.

Business owners are constantly intrigued by the idea of a starter loan, merchant cash advance or even a line of credit. Many entrepreneurs like to share their thoughts on “OPM” (other people’s money). But in my experience, one key to becoming a successful business owner is finding a balance between OPM and your own. OPM does provide leverage and some risk sharing. But if you do not scale OPM properly, you risk accelerating your business only to later come to a complete halt.

The most responsible way to obtain a loan is to start by gaining a clear understanding of how much are you making. This allows you to make a conscious decision about how much you can apply toward another bill monthly or annually. With business funding repayment options ranging from monthly and weekly to daily debits, it’s important you recognize the impact a new debt will cause on your cash flow and future profit margins.

Obtaining too many business loans or a business loan with high interest can be a quick recipe for a disaster. Be sure that when you’re making any financial decisions for your business, you are always considering all aspects and consulting with trusted financial advisors. Getting into debt can be a smart decision if you do it strategically. It’s important to assess the purpose of the debt, repayment strength, interest rates/fees and risks involved. Understanding your business’s ability to repay the debt is essential when you are considering taking on debt.

Keep in mind that, to avoid a potential financial disaster, you should have the amount you can afford to borrow in mind and develop a realistic repayment plan based on your profitability and cash flow that still acknowledges unforeseeable events and gives you some breathing room. This will help you prepare for temporary disruptions without experiencing severe financial stress. It provides a sense of security and flexibility in managing your personal or business finances. While profitability is important, you should also balance it with ethical considerations, responsible business practices and a good financial risk analysis to help yourself achieve long-term success.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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