I get this question frequently: “When is it the best time to take a business loan?”
My answer is typically: “It depends”.
Taken too early or too much debt can kill your business. Debt is a huge reason many businesses fail. They can’t generate enough revenue for all of their obligations, not just expenses.
Large debt payments or leveraging equipment or inventory can become a financial burden that is too much to overcome when you are starting and beginning to grow.
That said, I took a business loan for a business coach to help me, and I leveraged my car to do it. At first, I was dead set against getting a loan at all, but the learning curve was very steep getting into the online space and, admittedly, I needed tons of mindset work and support to get out here after Mike’s accident and the UNEQ consulting experience (you can click this link and read about my experience: https://entremoneycoach.com/blog/our-story/)
Here are a few things to consider when thinking about getting a loan (and the things I did):
1. Ask yourself if the loan is for growth or for expenses?
When I took out my loan against my car (using collateral not only made it easier to get but gave me a lower interest rate) I was paying to grow the business.
I wasn’t borrowing money to pay expenses each month. It is always better to pay your monthly expenses from the business or personal money, a side hustle, or even another business rather than borrow to pay the rent or inventory.
2. Do you have a plan for every dime you borrow?
I see entrepreneurs get approved for credit cards and loan amounts that exceed what they really need to make the growth jump.
You should only take what you need, and you should have a plan for all of it. Money without a purpose will run off and spend itself, and this is borrowed money.
You owe it back. If you want to have a “cushion” of about 10% of your project or growth need in the bank, just let it sit there and do not spend it. Once you complete the project, you can pre-pay the loan. Just make sure there are no pre-payment penalties.
3. Do you have a plan, and the capacity to make the payments now?
Another mistake I see is when loans are taken with the idea that once you make the investment, you will make enough to pay the payments.
That’s definitely what happens most of the time, but we don’t know how long things are going to take to make a return.
Call me overly cautious, and maybe I need to work more on my money mindset and manifesting but have a way to make the payments before you take the loan. I already knew that I could make the payments from my other business venture if necessary.
When you decide to take a loan remember that you are leveraging the future of your business until you pay it back.
Again, it can be a good thing to invest in your growth, cut the learning curve, purchase what you need to be able to serve more customers and clients, and expand your impact.
Use loans for growth, have a plan, and have the capacity to make the payments before you start.
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I want to see you investing money and taking business loans in the right way! Wish you the best with your business.