How to Decide if Taking Out a Loan is the Right Move for Your Business
Updated: Sep 14, 2022
If you're a business owner considering taking out a loan, there are a few things you should take into account before making your decision. First, you’ll need to consider the type of loan that's right for your business. There are many different types of loans available, each with its own terms and conditions. You'll also want to consider the interest rate and repayment schedule before signing on the dotted line.
Below are a few more things to take into consideration;
1. Determine your reasons for taking out a business loan
Ask yourself, what is my purpose for borrowing? Is it for working capital? To finance equipment? Or to expand my business? Once you know your reason for borrowing, you can better compare loan options and find the one that best suits your needs.
Secondly, how much do you need to borrow? Do you have a budget plan? This will help determine the type of loan you need and the repayment terms.
Lastly, what can you use as collateral? This may be necessary to secure a loan, so it’s important to have an asset in mind that can be used as collateral.
Club 720 makes it easy to apply for a loan and track your progress. Once you’re approved, you can use the funds for any business purpose. Whether you need working capital, to buy equipment, or anything else, we can help get you the funding you need.
2. Consider your options: Understand the different types of business loans
It can be confusing trying to figure out which loan is right for you. Here is a breakdown of two of the most common loan types to help you make a decision:
Term Loans: A term loan is a lump sum of money that is borrowed and repaid in installments over a set period of time. The repayment schedule is typically monthly or weekly. Term loans can be used for a variety of purposes, such as expanding your business, purchasing equipment, or hiring new employees.
SBA Loans: SBA loans are government-backed loans that are available through banks and other financial institutions. They offer low interest rates and long repayment terms. There are several types of SBA loans, including 7(a) loans, 504 loans, and disaster relief loans.
3. Determine what business loan you could qualify for
The best way to determine which business loan you could qualify for is to speak to a Club 720 Preferred Program Partner. However, here is a brief overview of some of the most common business loans:
SBA Loans: These loans are backed by the Small Business Administration and typically have low interest rates. In order to qualify, your business must meet certain size requirements.
Business Credit Cards: Many business credit cards offer 0% APR for a certain period of time, which can be helpful if you need to make a large purchase for your business. However, you will need to have good personal credit in order to qualify.
Personal Loans: You may be able to get a personal loan from a bank or online lender if you don't qualify for other types of financing.
4. Evaluate your business’s current financial situation
Evaluating your business's current financial situation is crucial to understanding where your business stands and where it needs to go. There are a few key areas you'll want to focus on when evaluating your finances.
Take a look at your revenue and expenses to get a clear picture of how much money is coming in and going out each month. It's important to keep track of both fixed and variable expenses, so you can get a handle on where your money is going.
Examine your debt situation. How much debt does your business have? Are you able to make all of your payments on time? If not, you may need to consider restructuring your debt or finding new financing options.
Determine your business credit score. A good credit score can help you secure loans, lines of credit, and interest rates. You can purchase a report from one of the major credit bureaus or you can use Club 720’s free credit score tool. If you find that your business credit score is lower than you'd like, try paying your bills on time and maintaining a good relationship with your creditors. You should also try to keep a low balance on your revolving accounts.
Evaluate your business assets and liabilities to get a clear picture of your company's financial health and make informed decisions about taking on new debt, such as a business loan. To assess your business assets, start by looking at your cash on hand and any investments you've made. Then, calculate the value of your inventory and equipment and consider any real estate or other property owned by the business. To assess your liabilities, begin by listing all the money you owe to creditors. This includes outstanding loans, credit card balances and accounts payable. Then, calculate any taxes owed and estimated future expenses, such as lease payments or insurance premiums.
Take a look at your cash flow. Do you have enough cash on hand to cover unexpected expenses or opportunities?
5. Weighing the pros and cons of taking out a business loan
As a business owner, you may need to take out a loan at some point to help with expenses. Weighing the pros and cons of taking out a loan can help you decide if it is the right decision for your business.
The pros of taking out a loan include having access to extra money when you need it, being able to finance large purchases, and being able to improve your credit score. The cons of taking out a loan include having to make monthly payments, paying interest on the loan, and putting your personal assets at risk if you default on the loan.
Before you decide to take out a loan, be sure to consider all the pros and cons in order to make the best decision for your business.
6. Learn about business loan alternatives and other options
If you're a small business owner in need of capital, you may be considering a business loan. But loans aren't the only source of funding available to you. Let’s explore some alternatives to business loans that you may not have considered.
One option for funding your small business is to use personal savings. If you have money saved up in a personal account, you can use it to finance your business without having to take on debt. This can be a good option if you don't want to put your personal finances at risk or if you don't qualify for a loan.
Another alternative to a loan is to seek out investors. You can offer equity in your company in exchange for investment capital. This can be a good option if you're looking for a large sum of money and are willing to give up some ownership of your company.
With so many options at your disposal, you might not know which one will fit you and your business best, and this is the beauty of the planning process. By evaluating your options and understanding the risks involved, you can make the best decision for your business and feel good about it!
Club 720 has partnered with a variety of small business loan providers to offer our members the best possible rates and terms. Once you have downloaded the app and completed your application. We will help match you with the best loan to fit your needs. Get started today!