Borrowing money for a business is a long and difficult process, even for established businesses generating stable profits. If you’re borrowing for a startup with zero credit or poor credit, things get even more complicated. Many lenders are having second thoughts in lending to small businesses. But, you can still borrow. You just have to prepare yourself for high-interest loans, because there are a few lenders who are willing to lend money to “high-risk” borrowers.

Despite the difficulty in obtaining small business loans, entrepreneurs have to face it one time or another. It is because business loan is essential in business funding. Here are some of the important reasons why you need to obtain a business loan today:

 

  1. Your business requires capital to start.

Every business needs money to start up. You can’t start anything from scratch. Not everyone could magic up a wad of cash like Fairy God Mother. So, business loans are necessary.

You need money to get your business off the ground. Perhaps you need to purchase space or rent one for your business. You also need supplies, equipments, and furnitures to take care of. Plus, you cannot start a business without working on the legal and accounting aspects.

There are licensing fees to pay and you may also need to do some research to develop your product or service. Of course, if you do not intend to run your business single-handedly, you may need spare cash for manpower. That is why you need to look for the right funding that will work best for your new business.

 

  1. You need to manage your running costs

This is where your proper budgeting skills are tested. Trade off and Opportunity cost is applied here. Know your priorities. A business loan could only fund so much.

Do you have enough short term assets to cover your company’s short term debt? If you want to know what working capital is, it simply means, your current asset after deducting all your current liabilities. So, if your working capital is below 1, it simply means that your business cannot fund its own operations. If your working capital is small, then it means that you are not investing on assets.

 

  1. You have to prepare for unexpected expenses.

Is your business ready for emergency expenses? Despite the proper budgeting, something would just surprise you. So always include this in the list of expenses you’ll use the loan for.

An entrepreneur always needs to have funds available for unexpected incidents. If an entrepreneur does not have an emergency fund, he or she could end up increasing debts, or having to pay late fees on loans simply because it becomes impossible to make ends meet. Sometimes, you may not be able to pay for important things-like supplies, equipment repair and the like because you used up the money for the emergency cash needs.

 

  1. When setting up an emergency fund, you need to consider both your personal and business needs.

You don’t use your personal cash reserve for your business needs. In the same way, it is not advisable to use up your business cash reserve for your personal consumption.  Remember that when business is not doing well, you need to have your own personal funds to cover your basic living expenses. Using up your working capital in time of personal emergencies may out your business at risk, especially if you don’t have a financial buffer to make the ends meet when your business needs cash for its daily operations.

 

  1. You need to set-up the payment plan. It costs money to sell, and to receive payment.

 

  1. Business has a legal aspect.

There will be many troubles as you go from working stiff to overworked small business owner. Some of those troubles will be composed of stacks of documents with county permits, state requirements, taxes, contracts, shares, and more. Having someone that’s only a call away whenever you need them will not only relax your mind, it will give you a much-needed source that can help you map for success.

 

  1. It is important to hire an accountant to skillfully handle your financials

Preparing your financial statements, might be quite difficult. Hiring an accountant will make the job easier. An accountant can help you organize your financial arrangements.

 

  1. You need to form a business entity, and it takes money to do that.

Decide what type of business entity you want to be to eventually attract parties that might be interested on investing to your business. This is one of the last steps taken before money is actually spent or before business loans are taken.

 

  1. Cover the marketing costs of your business. Social media and traditional marketing costs a lot of money. You need to have some funds set aside to make your brands available to the public.

 

  1. You need money to launch your business.

Like stated before, money is needed. No business has started without any capital. Launching your business without a proper fund could cause the downfall of the business that hasn’t even started.

 

Do you need to obtain a business loan for your business funding? Contact us to learn more about small business loans suited to your needs.

Share this Post