Small Business Loans: When Does Good Debt Become Bad?Ink Well Mag January 21, 2016 0 COMMENTS
Every self-respecting entrepreneur knows what a good debt is at the heart. Because you’ve got to spend money to make money, having sufficient capital is a non-negotiable requirement to start up whatever business you have in mind.
Although your purpose for loaning is to build wealth, it doesn’t mean it has no downside. Borrowing money sure involves consequences, and even if you feel you’ve already calculated the risks you’re taking, maybe you should give it some more thought, or else you might commit these mistakes:
Relying Heavily on Loans
Many entrepreneurs seek financing from an SBA-preferred lender in MN, CA, CO, and other states to secure the necessary capital they need. Little do they realize, though, that they shouldn’t depend on business loans alone.
Sure, you can borrow some of your capital from lending institutions, but some of it should come from your own pocket too. Your loan has to be repaid over time, which then becomes a monthly overhead for many years. The bigger your loan is, the bigger the amount you have to repay every month.
If you fail to generate the sales you expect monthly, it might result to negative cash flow — and possibly insolvency.
Agreeing to an Unfavorable Deal
Venture Bank reminds everyone that getting approved for a business loan is one thing, securing a favorable deal is another. Before you lock it in and sign on the dotted line, make sure it’s best available loan for your situation out there.
Using the competition to your advantage can help you secure a loan with the lowest possible interest rate and the most satisfactory term. It’s advisable to get as many quotes as you can before you negotiate.
Loaning Some More
Acquiring another debt to finance your business after the first loan funds run out is tricky. You’ve learned from your rookie mistakes, and now feel wiser to start all over.
Borrowing money again can either be the catalyst that would propel your enterprise to profitability, or be the excavator that would put you in a deeper financial hole.
Applying for a business loan is certainly a serious commitment. If you jump into a decision without prudence, your plan to build your wealth might lead to the opposite.