Do's and Don'ts of Business Loans

Posted On: 04-August-2022


Capital is one of the most challenging aspect of starting or growing a business. But there are Do's and Don’ts to everything and business loans are no exception. So read these points below to know what you must do and not do when applying for business loan.

1. You must borrow your capital at the right time. By right time what we mean is whether you need startup funding or you’re looking to expand your business, take time to know your business, plan the specific time you will need the money and where it will go when you have it. If you borrow too early you might just be so tempted to use it on something else and borrowing too late could put you in unnecessary financial pressure in the journey of your business.

2. You must not borrow more or less than what you need. You'll need to provide a full review of your projected costs and revenue, preferably with positive and negative projections. Borrowing too much money can leave you in debt that you have to repay and borrowing too little could be a problem in the times when you are met with unexpected requirements.

3. Even thought interest rate is important part of a loan the are other things too which are of importance and which are worth thinking of. You must think about how long will your repayment period be, how much will the borrower be willing to lend you depending on the value of the assets that you hold, what are the flexibility on repayments and many more.  Interest rate is an important factor but there are other important things too.

4. Yes, loans are debt. But, there are good debts and bad debts. And repaying a loan too quickly can harm your business, leaving you short of available funds to grow your business. Look at your statements and compare how much you would save in interest if you were to repay it earlier, with your projected return on investment of the loan – taking into consideration if there are any other ways you could invest that projected income.

5. You may be connected with one personal banking or finance company but that does not mean everything finance related you have to conduct through the same institution. Banks are also like the shops that sell similar products. They each have their own offering of similar products, described in different ways. They are all vying for your business. So, shop around and find the best deal. Diversifying your banking relationships also benefit your business should your business hit a bump in the road. After all, you don’t want one lender to be holding all the keys to the kingdom should something go wrong. To take benefits of business loans you must pay attention to the points discussed.