There are best practices to follow that guide financial success. Failure to adhere to these simple steps may result in a not so desirable outcome. This concept applies when borrowing money, as well. What should you (as a business owner) do to ensure that the whole process goes smoothly? What should you avoid? Let’s have a look!
1. Do: Have the right reasons to borrow
So, you’re reading this article because you’re considering borrowing money, right? Do you have a pre-determined goal that this loan is going to solve? (For example, you’re using the money to invest in new equipment that will boost efficiency.) Keep in mind that credit is by no means a pass to free money. It is something that is borrowed, and while paying back, incurs interest. Whether you’re borrowing money to rent new equipment, pay employees, or buy office supplies, ensure that it results in a positive return on investment (ROI.)
2. Do: Confirm that you can afford the payments
Even if the interest rate is low, it’s imperative to triple check that the loan paymentswork well within your monthly budget. If you are unsure, it’s best to take a step back and analyze your income versus debt ratio. Additionally, if you are still unsure there are many professionals that specialize in business loans and can help to review your options.
3. Do: Continue to save while paying off debt
There’s no doubt about it, saving money while paying off debt simultaneously can seem like a balancing act. Any business owner can attest to the fact that unexpected expenses pop up at the worst possible times. This is why it’s important to save (as much as you can) each month so that in an emergency, you are covered. Talk with a professional and come up with a business plan that works best with your income versus expense ratio.
4. Don’t: Borrow while you still have debts
Times are tough, and you’re tempted to take out another loan to fix the copy machine that just started smoking. But WAIT. Is that really the best decision for your business? Alternatively, you can spend a fraction of the cost and hire a professional to repair the machine instead. Yes, this might be a “quick fix” but it will solve the current problem at hand. Just remember, it’s not smart to add to unsettled debt.
5. Don’t: Skip payments
Late payments along with missed payments both will lower your credit score. By making payments on time, you will not only avoid late payments, but pay off the debt in the provided period of time. If you fail to adhere to the loan terms and conditions, you may jeopardize your chances of getting another loan in the future.
6. Don’t: Trust bad lenders
With so many lenders available, it’s not difficult to find yourself beginning the journey down the wrong path. If there is one takeaway to be adopted by this article it states that if a loan deal sounds too good to be true, then it probably is. Beware of short term loans with ultra-high interest rates. These end up costing you way more than what was borrowed in the first place. Borrowing money the right way does good things for business owners that are in need of growing their establishment.
7. Don’t: Keep it a secret
Do you have a business partner? What about a finance manager? If so, it’s important to keep all parties in the loop about new business debt. If you fail to do so, your business partners could be borrowing money at the same time you are. This goes against #’s 2,3 and 4! Leaving them in the dark can certainly affect your partnership.