Being an entrepreneur comes at a cost. Sometimes that debt is paid in time, other times, only cold hard cash will do. As intimidating as taking a loan can be, it’s sometimes the buffer an entrepreneur needs to start or expand their difference.
By taking a strategic approach to borrowing, entrepreneurs can optimize their return on investment and use the money borrowed to pave the road to success. Here are five tips for entrepreneurs who are considering a loan.
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Organize Your Business Data
Before you consider taking out a loan, you need to get your data in order. For a new business, this could mean creating a financial plan that outlines not only what you need the money for, but how your business will earn it back. For established companies, having a record of past expenses, revenue, debts, etc. will be required.
Get your business information in order before you approach a bank or loan company. They will want to see that above all else, you are capable of paying the loan back within the terms you’ve agreed upon.
Look at Your Loan Options
There’s no shortage of loan options available. From business line of credits to things like boat title loans, even those with little or no credit are able to borrow money.
That being said, you should take a smart approach to finding the loan that works for your needs. If you already have bad debt, finding a way to refinance that debt will take precedence over new loans. Depending on your business and personal history, you may be eligible or ineligible for various loan types.
Take some time to do research about the loans available to you and shop around. Talking to a financial expert can help you find options you hadn’t previously considered.
Read the Fine Print
When taking a loan, it’s your responsibility to be sure that you understand what you’re agreeing to. Go over your agreement with a fine-tooth comb. Highlight things and ask questions. A reputable loan provider will be more than willing to help you understand. If you feel uncomfortable about something, don’t sign it.
You’ll also want to be wary of offers that seem too good to be true. As the saying goes, if it sounds too good to be true, it probably is. The last thing you want to do is put your business at risk.
Perfect Your Approach to Business Finances
While looking at your loan options, don’t forget to look closer to home for more money as well. If you haven’t been tracking your expenses or lack a P&L, it’s time to get your house in order.
In many cases, entrepreneurs are spending more than they realize. It’s not until tax time a year later when their expenses are tallied up, that they realize they’ve spent hundreds or thousands of dollars that they didn’t need to.
Look into various ways to manage your business finances, whether it’s by using apps or a system like Profit First. You may find that you don’t need to borrow as much money as you had originally anticipated or at all.
Create a Spending and Payback Plan
Before you take out a loan, outline precisely how much money you need and what you need it for. Do this even if the bank or loan officer doesn’t need this information. This document will be your guideline for spending and help you stay on track.
Sometimes when an entrepreneur sees an influx of cash, they’re tempted to buy a few extras. With a plan in place, you create the structure you need to overcome that temptation and focus on the goals you’ve set out for your business and yourself.
Borrowing money doesn’t have to be a negative experience, as long as you’re smart about it. Stick to the terms and pay it back when it’s due. If an issue arises, be proactive and discuss your options with the provider. Most importantly, never borrow money unless you’re sure you can pay it back.
About Carson Derrow
