Taking a loan is the biggest and important decision in anyone’s life. Whether it is taken for personal use or professional growth.
Especially in the case of small businesses, taking a loan is not only about getting the money when you need it; it also comes with many other responsibilities. So, it becomes crucial to understand a few things or rather rules before considering taking the loan for your small business. Let’s explore and understand what could be these rules.
- Consider the Reason You Are Taking the Loan– It is really important to understand why you are taking the loan. Is it to save your business, to maintain it or to grow it further? This is important to consider is because this will prepare you for the future as the responsibilities that come with a loan could be similar but your mindset while dealing with the challenges you are facing and the repayment of the loan according to those challenges is a challenge in itself. So, it’s really important to know why and what you want.
- General Rules of Taking Any Loan– Irrespective of the reason behind taking the loan, there are certain rules for the same. As you have decided why you want to take the loan, following these rules will help you be prepared and on track before your business take on debt.
- Before getting the funds, you must create a 6 monthly financial plan to expect and executive realistic growth. Decide where you will invest that money, how much you will spend in each area such as sales, marketing, HR, projects, vendor contracts etc. and how that investment can be turned into profit. The financial projections are really important here. That will keep you realistic and prepared.
- Having a clear repayment plan is really important because that will keep you on track. You must have a repayment plan in writing where you mention when you are planning to give the last instalment of the loan.
- Never use the amount that you have got for your business for personal purchases or to pay out non-business debts. This is a vicious cycle where you pay for debt by taking more loans and then pay for that by taking another loan. Also, it may feel tempting to buy things that you want for personal use rather than what your business needs. Keep this rule in mind and do what is right for your business growth.
- Don’t procrastinate or get relaxed after getting a loan as your immediate capital needs are resolved because this is the time when you need to double up your efforts because now you need to save, sustain or grow your business in addition to repay the loan you have taken.
- Introspect Whether Borrowing Money Is the Solution– You might be feeling that without taking the loan you won’t be able to survive and grow but before taking the loan you must introspect on some aspects and ask yourself some questions to make the right decision.
- What is the reason behind the financial struggles? You must know the exact cause behind it otherwise the mistake or ignorance can occur again and you don’t want to end up covered in debt the whole life.
- Have you tried to resolve that cause without the money? In case it is not possible, have you made a written plan to resolve it as soon as you get the money?
- As mentioned earlier that after getting the loan you need to work harder, so are you ready to put in your best and even more after getting the loan?
- In case of maintenance of your business, ask yourself whether the same need can be fulfilled with more sales or revenue or by cutting some expenses?
- For the growth of the business, you must consider asking yourself whether you have enough profit and revenue to pay the debt or can your business model give long term profitability?
- Make an informed and intelligent decision by focusing on each aspect discussed above and never look back.