How To Borrow Money For Your Business
If you want to grow your business, or you are going through a slow period, or your cash flow hasn’t been great and you have suppliers to pay, you may want to look at additional funding to help you. Simply choosing the first traditional lender that will give you the money you are looking for without carrying out any research or understanding what you are signing up for is a bad idea – you might well get the money, but at what cost? Instead, it is better to look into exactly what you need and how to get it; read on to find out how to start.
How Much?
To begin with, you need to know how much you are going to want to borrow. This is true no matter which funding option you want to try, whether it’s a traditional loan, an angel investor, or even crowdfunding. Without knowing how much you need to borrow, you could easily borrow too little or too much, and both of these outcomes will harm your business.
Borrowing too little will mean you have to go back and ask for more money to complete your plan. This won’t be looked on favorably by lenders who have already lent you money and seen that you spent it quickly and didn’t budget. You may not be able to obtain any more funds, leaving your project half-finished.
Borrowing too much is also a bad thing. You could overstretch yourself and find that the repayments are too high; you’ll effectively be wasting money paying back a loan that you didn’t need. This can cause a problem with cash flow. A financial advisor such as those at ethica.net.au can be beneficial in this situation.
Which Type Of Borrowing?
There are a number of different types of borrowing that you could think about when you want to borrow money for your business. The first that will most often come to mind is a traditional business loan, although this might not be suitable for everyone – without a trading history or good credit in the business, you may not be awarded the money you ask for.
If this happens, a personal loan could be the solution. This would mean you are personally borrowing the money and investing it into your business. The business should then pay you back (with interest if possible) so that you can pay the loan. Even if you have poor credit, this idea might still be possible as there are specific loans for precisely this situation.
Another alternative is crowdfunding. You need to create a great campaign that captures people’s attention and then use the money they invest in boosting your business. An angel investor can be another excellent way to do this; not only will you receive the money, but in some cases, you will get their expertise too, as they will want to be directly involved.
Understand The Terms
Whichever type of funding that you choose to go with, there will be terms attached to it. The terms will tell you how long you have to pay the money back, the interest rate, what penalties there are for late payment (or missed payments), etc. You must read and understand these terms before agreeing to the loan or other funding offered to you. Poor terms could mean that you cannot pay the money back or that you are penalized without realizing it.