Most Australian businesses need to borrow money occasionally, even ones that are turning a profit. While they might be generating enough income to cover all their costs and still have some left over, the profits might be insufficient to fund things like equipment upgrades or new ventures that will help the company grow.
Business loans are one of two basic ways that businesses can raise extra money when they need it. They are the most common choice because the other options involve selling a stake in the company. While they are not usually as impactful a decision as the latter, business loans still require careful thought and planning. Here are the steps you should take to make sure that a loan is the right decision for your business.
Have a clear spending plan
There are two reasons why you need to have a clear plan about how you will spend the loaned money. The first is that it will help you to spend it more wisely. The second is that it is one of the first things any lender will ask you. Some popular reasons for seeking business loans are to expand the business, buy new equipment, or to cover costs when income is irregular.
Work out how much you need
If you are buying property or equipment, this is usually quite simple. If you are borrowing because of cash flow difficulties, this is more difficult because you do not necessarily know how long they will last. Completing the next step should help you.
Speak to an expert
Applying for business loans can affect your credit score, including your personal one. If you are inexperienced, do not just apply and risk refusal. Seek help from business loans experts in Sydney or your city. They can advise you on how to make your application as strong as possible, as well as how to pick the right loan for your business needs.
Consider different loan term options
Money can be lent to businesses in various forms, but the most common are bridging loans and term loans. These are repaid with interest over a specific period of time. The lender will usually give you options for how long you have to repay, and this affects the amount of each regular payment you will make. Review your business’s past cash flow and forecast what it will be in the future to be sure that you can make the payments.
You may be able to reduce the payments if you choose a secured loan – one where you offer the bank possession of some of your business assets if you fail to repay. However, some lenders charge a fee to value your assets. Remember to consider the overall cost too.
Conclusion
Applying for a business loan can affect your credit score and it commits your business to paying another regular cost on top of all the ones it already pays, like wages and rent. It is not a decision to be taken lightly. Having a clear idea of how much you need and what you will do with the money, as well as getting a second opinion from some experts, will make sure that your loan puts your business on the path to success.
