When Is It Time To Take Out A Business Loan?
- Written by NewsServices.com
It takes money to make money, as the saying goes. Taking out a business loan via a commercial mortgage broker is a common consideration for many small businesses needing more capital, whether you’re aiming for business expansion or need financial aid through a cash flow injection.
However, given the debt and interest businesses must repay, a business loan is not a small decision. As a result, entrepreneurs must accurately calculate their loan’s potential return on investment and weigh it against the financial costs of applying for one.
In this article, we’ll go over why you might need a business loan and the best times to get one to ensure that the loan you get benefits you.
Have Good Motivations For Your Loan
When taking out a loan, your reasons and motivations are the first things to consider. We’ve listed some common scenarios where you might be ready to take a business loan through a mortgage broker in Melbourne.
Improving / Expanding Your Business
Productivity investments for your company are often a good reason to take out a business loan. The additional money helps gain higher-quality workers, improve your work environment, or update your equipment.
Taking out a loan for expansion is also an option, as investing in a new business location or additional marketing can help you reach a wider audience and drive up sales.
Given that both are improving and expanding the focus on increasing productivity, it can be easier to repay these business loans given the potential increase in revenue, provided you make the suitable investments.
Building Future Credit
If your company is still in its early stages, or if you plan on building a more robust credit history, it may be a good idea to consider taking a business loan.
Making consistent loans or debt repayments is the only option for building your credit as a business. So long as you’re confident in your ability to repay the loan, taking out a loan for the express purpose of credit building will benefit your financials in the long run.
Capitalising On a Good Opportunity
Good business opportunities can be scarce. If your company comes across an opportunity that could result in significant financial gains and the expansion of your business, you should consider taking out a business loan if you lack the resources to close the deal.
When Should You Not Acquire A Business Loan?
While applying for a business loan is generally advantageous in the above circumstances, there are times when not obtaining a loan and delaying your application may be more practical.
You Have Maxed Out Your Credit
If all of your current loans and credit lines are maxed out, applying for another loan is far from the ideal solution. Instead, examine your current debt situation and devise a way to improve it and your business’ credit score.
You Recently Opened Your Business
The early finances of a new business can be turbulent, so accurately estimating a loan amount (and the repayment schedule) can be tricky. Given the circumstances, it may be best to wait until your business stabilises itself before applying for a loan.
You Have An Outstanding Loan Present
We recommend always paying off any current business loans you may have before applying for another one, as having to pay for two loans alongside other expenses may stretch your budget unnecessarily.
You’re Unsure If You’re Able To Repay The Loan
A good rule of thumb is to spend no more than you can afford. If you’re unsure whether a new investment will pay for itself within the loan’s time frame, you should reconsider your options and decide whether applying for a business loan is the best option.
Timing Your Loans Correctly
Even if you have the right motivations and reasons to apply for a loan, you will still need to consider the appropriate timing to get the loan.
Apply for your funds too soon, and you may still be debating where those funds will go due to a lack of information, which can result in higher interest rates and a delay in your ability to repay the loan completely.
On the other hand, if you apply for your loan too late, you may not have enough time to distribute the funds to make ends meet adequately. It may also pose a risk to your business when your company faces significant financial strain.
Ideally, it would be best if you aimed to have your loan funds available to you right when you need them; this reduces the risk of overpaying on loans while also ensuring your funds are used wisely.
Be Savvy With Your Business Loans
Navigating business loans and knowing when your company could benefit from additional funds is an essential part of entrepreneurship, so have your finger on the pulse of your business and carefully consider your requirements and the benefits of a business loan application.
If you need help setting up a business loan, or advice on whether a loan is suited for your circumstances, speak with your local mortgage advisors to learn more.
