Show Me the Money: 3 Reasons to Take a Business Loan
Believe it or not, deciding to take a small business loan may be the single most important action you can take towards the success of your business.
It's All About the Money?
Every year, 500,000 small businesses open in the United States and within the first five years of opening their doors, 50 percent of those businesses will close up shop.
By 10 years, that percentage increases to 70. There are, of course, many reasons that can happen, including phenomena that are entirely out of the hands of any small business owner but one of the details that can be tackled in a preventative way, is the need for cash.
Often a business has its value tied up in inaccessible assets – like real estate and future potential earnings. When this is the case, if there is a need to move money quickly, despite an officially healthy net worth, your company would be out of luck – were it not for the possibility of taking a small business loan.
Having adequate working capital means that you can accommodate the immediate needs of your business and it protects you from slipping into the 80 percent of small businesses that fail specifically because of inadequate working capital.
Funding Your Small Business
To obtain the working capital you need, you have quite a few options of places to turn. Sources for business funding include the following:
- Credit unions
- Purchase order financing
- Inventory financing
- Borrowing against receivables
- Merchant cash advance
- Borrowing from a personal IRA
- Peer lending
- Friends and/or family
Obviously, some of these methods are more effective than others, and while your family and friends may be your biggest fans, it may in your best interest to avoid relying on them for private funding.
Peer lending and crowdfunding are new, creative ways to bankroll your business, but there are many times when the traditional stability of taking a loan out at a brick-and-mortar bank has its advantages.
In fact, research data shows that small banks are one of the best sources of funding for small businesses, along with the myriad of alternative lenders.
It’s Okay that “Loan” Is a 4-Letter Word
Borrowing money to keep your business afloat may be an ongoing endeavor. Statistics show that a year after an initial loan, nearly 50 percent of small businesses are still carrying that same amount of debt.
Keep in mind that having a static rate of debt means that interest is being paid off and, presumably, the company is making good use of the liquid funds. That loan becomes the fuel that makes your company run; it is the opposite of a bad thing.
Certainly, there are those who become bogged down in debt, and in doing so, they put their business and their personal finances at risk. But as important as it is to avoid that potential mess, it is also critical to be able to borrow when your company needs the funds.
Borrow responsibly and handle the loan responsibly, to make sure that you are among the 20 percent of companies with adequate working capital. Your success may hinge upon those funds!
If you are considering taking a small business loan, or have done so already, make it easier on yourself. Follow these 6 steps to help you calculate your monthly loan payments.
About Naftali FeigNaftali Feig holds a bachelor’s degree in finance as well as an MBA.
He has over 15 years of professional experience in financial management, reporting,
and project management. He has worked as a controller and operations manager
and owns his own real estate investment company. He believes relationships are
the key to a successful business. He currently provides consulting and solutions
to entrepreneurs starting their own brokerage businesses.
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