It’s no secret that companies borrow money to ensure access to extra working capital. These funds can help companies to grow, whether rough patches and operate more efficiently as a business.
Is it the right time for your business to apply for a commercial loan? Don’t wait until the ship is sinking! So, take a moment, have a cuppa and let us give you some insight into the nature of business borrowing and what it can do to help your company.
Have you ever applied for a business loan before? No? Do the suits and ties put you off or did you fund your business with personal credit and savings. You aren’t alone in this approach. In fact, Forbes reported that a majority of new businesses use personal savings or loans against personal credit and assets. In contrast to personal loans, commercial loans are those made specifically to a business and not an individual.
Terms can run from 30 days to 30 years and the amount borrowed could range from a few thousand into many millions! Businesses use this money to guarantee access to working capital when they need to hire talent, purchase stock or make investments that support the business’s growth.
Which one is right for your business? Certainly, you should explore all the available options before making an informed decision.
If you are relying on your personal credit or savings for business funding, you aren’t establishing credit in your company’s name. You could, in fact, be damaging your reputation! In order to raise your company’s credit rating, you need to establish the company’s own credit accounts.
Your first loan also gives your business a chance to demonstrate that you can handle the credit responsibly. Companies that deal with loans and credit are still businesses and they need to be certain that you can be trusted with the funding.
Let’s say, for example, a farmer gives a young shepherd a wolf, cabbage, and a sheep to take to his new location as a test of his capability. The shepherd keeps them separated and close watch on the wolf as he travels. So far so good, right?
However, it has been raining heavily and the stream has become a river. He must cross carefully, but he can only carry one item at a time. You wouldn’t trust a shepherd who leaves a wolf alone on the riverside with the sheep while he carries the cabbage across, would you?
Like the young shepherd, a fledgeling business must prove that it can fly before commercial loan companies will give it major capital to leave the nest. Even if you don’t need a loan today, you never know when the stream may flood and present your company with an unexpected hazard to traverse.
You can always apply for a line of credit and only borrow funding as you need it. After all, you can find some way to use the extra money to help reduce future expenses or grow your business!
You can pay back the loan promptly and you know you have credit access should you need it. Why not borrow a modest amount to fund one of your business goals? If you start today and take a manageable amount, you have a better chance at testing your credit management strategy in action and preparing yourself for the future.
Are you worried about redundancy, and how this may affect your finances? Read our redundancy and debt blog now.