Consider the amount of money your business needs before applying for a small business loan
Your business is struggling through some difficult times. Or maybe it is thriving and you are wondering if now is the time to expand. Whether you need money to get through a slow season or to expand your successful business, you may be looking at a small business loan. One of the things to consider is how much you should borrow. The answer to this question is not quite as simple as you might think.
Consider the Amount You Need
Your first consideration will be how much you need to borrow for the specific reason you are applying. If you are looking to expand your business, purchase new equipment or pay bills, you probably have a dollar figure in mind.
Make sure you do your research to get an accurate number. For instance, if you are purchasing new equipment, you will need to know how the price of the item along with insurance and other costs involved with the purchase. If you want the money to pay some bills, you need to add up the balances for all your debt. The last thing you want to do is get a small business loan and not have enough for your needs.
Whether you need money to get through a slow season or to expand your successful business, you may be looking at a small business loan. One of the things to consider is how much you should borrow.
Consider the Cost of the Loan
The cost of the loan is more than just the amount you are borrowing. Think about any fees and charges you may have for getting the loan. You will want to find out if these fees are added in or if you must pay for them out-of-pocket. These charges will increase if you end up needing to take out a second loan in the future because you require more funds than what you initially thought.
Interest is another cost you must think about. Even though it is added into the monthly payment, it does impact how long it takes to pay off the loan. Find out if there are any prepayment penalties. You want to avoid those types of loans because you end up getting punished for trying to save money on the interest.
Consider the Future
When applying for a loan, you need to think about the future of your business and how it will impact your financial situation. For example, if you are getting a business loan for payroll, think about when your sales will pick up enough to pay for this expense in the future. Will you have enough cash on hand for next payday?
If you are expanding your business, when will you start receiving revenue to pay for expenses? You may need a loan to cover utilities and other operating expenses until revenue increases. That can take weeks or months before you earn enough to equal the costs of doing business.
For those who need a business loan for regular expenses during a slow season or loss of customers, think about when your business will pick up again. You will need to get a loan to cover those expenses until your revenue increases.
Consider Your Resources
When looking at financing an expansion or money to pay bills, you want to look at what resources you have available. Maybe you can find investors willing to put money into your business. Perhaps you have extra cash on hand to use for part of the expenses.
On the other hand, you may find that a loan is the sensible way to go because you can find a better use for your cash. For instance, you may want to expand your business. You could use your cash to pay for the expansion, but you do not want to tie up those funds in case of slow-paying customers or other issues that could arise. A business loan pays for the expansion and leaves your cash free for other expenses.
How Much Do You Need?
With so many variables and considerations, you may want to talk with an accountant or financial manager to help determine how much money you need in a loan. A loan can solve immediate problems, but only if you have enough cash to get through a specific situation or time period.
How much are you looking for?
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