There are positive reasons as well as erroneous reasons to make the decision to take out a loan, and it’s important to be able to tell the difference. However, that doesn’t mean that there is no good reason to take a calculated risk and proceed with getting a loan for the purpose of expanding your business.
If you’re considering getting a personal loan, you must be ready to take the leap and complete all the requirements to get the approval you desire.
To ensure your success in this endeavor, keep in mind that the following motivations for securing a loan make the most sense from a business perspective.
1. Good qualifications
If you have the background to qualify for a loan, as well as enough patience for completing a substantial amount of paperwork, then go ahead and get a loan. Depending on your financial track record, you may be able to get lower rates, more flexibility in loan application, and generous payment terms.
You must also have a good credit score to help the lending institution see that you can actually make repayments.
When you have good qualifications, you’ll be confident that you can make repayments. This means you won’t be anxious about high-interest rates because you know you can handle them. After all, it’s easier to agree to a higher interest rate when you are fully aware that you can pay up and be debt-free quickly.
Got a stellar track record?
Is your business up and running, and do you have excellent assets and credit? If this sounds like you, it’s time to get a business loan. By doing so, you’ll perk up your credit score and enjoy anticipated monthly payments.
With the right financing option, you can realize your success and build strong relationships with institutions that support your business. Having the right funding in place will set you on the path towards your ultimate goal: seeing your business prosper.
2. Readiness to expand your location
Are your cubicles bursting at the seams? Do you have no place to set up your new computers? This only means you have outgrown your current office location.
If you have more staff and customers coming in and out than can fit your space, it implies that your business is booming and you’re ready for an expansion. But just because you’re ready to expand doesn’t always mean that you already have the money to make it happen. In this case, this is where you need a loan to finance your move.
Whether it’s putting up an additional location or packing up and moving to a whole new and bigger site, the cost and change in overhead will be large. A loan will be a welcome provision that can help you get the move done.
3. A need for equipment
Buying new equipment to improve your business productivity or offering is a logical reason to get a loan. Depending on your lender or bank’s terms and conditions, the equipment itself can even serve as collateral, similar to a car loan.
Before you decide to purchase more equipment, make sure to separate your needs from your wants. You should buy the equipment because it can contribute to the success of your business rather than just being an attractive but empty and useless investment.
4. A goal to build credit for the future
If you plan to apply for large-scale financing in a few years for your business, starting with a short-term loan can help you build your credit.
Young businesses usually have a hard time qualifying for bigger loans because both the company and the owner have yet to establish a strong credit history. Taking out a small loan and making on-time payments will help foster your business credit for the time to come.
This approach can also help you build a positive relationship with a lender, which gives you a reliable connection to come back to once you’re ready for a bigger loan.
However, you have to be careful not to take out an early loan that you can’t afford. Even a single late payment on a small loan can decrease your chances of being eligible for future funding.
5. A business opportunity that outweighs the potential debt
An opportunity falls on your lap and it’s too good to let pass. In such an instance, you should determine the return on investment (ROI) of the opportunity and weigh the cost of the loan against the revenue you can generate by grabbing the opportunity.
If you’ve calculated that the potential ROI outweighs your loan debt, then go for it. But be careful with your calculations as you may be overestimating or underestimating true costs or profits due to over-enthusiasm.
No matter what your reasons for getting a loan may be, if you have factored in all costs and considerations and you have adequate justification that the loan will improve your business, then go for it. You should be confident in your ability to repay your loan and perceive your business success. Every business decision entails risk, and only you can determine whether the risk is worth it.