Nowadays, many entrepreneurs decide to start their own venture. Running a startup business can be a daunting task, especially since startup businesses must compete with well-developed and better-funded companies on the market. In an effort to help their startups grow and develop further, many entrepreneurs pour personal funds into their businesses. Even then, startup businesses run into financial difficulties all the time. It’s no secret that running a company requires a hefty investment. Not only that, but additional funds are also required to support the startup’s growth.
Entrepreneurs oftentimes have difficulties securing those funds and are forced to shut down their business within the first five years. As a matter of fact, eight out of ten businesses fail due to the lack of proper funding. However, not all entrepreneurs underestimate the costs of running a business. A lot of business owners manage to secure funding through business loans and other investment methods to ensure their business’s survival. That being said, here are a few ways taking a loan can push your startup forward.
Debt consolidation
As mentioned before, many entrepreneurs pour personal finances into their startup business. This oftentimes results in having more than one debt. For instance, these include maxing out multiple credit or debit cards, missed or late payments on bills, utilities and maintenance, neglected tax payments and so on. The more debts an entrepreneur has, the more difficult it becomes to manage them all. This leads to additional fees, high interest rates and more expenses that only produce more debt. It can also ruin your personal credit score and set additional financial challenges for your startup.
In such cases, taking a loan to consolidate debt is a good opportunity for business owners to get a hold of their finances. Basically, debt consolidation means taking a single larger loan to cover multiple smaller ones. Debt consolidation loan oftentimes has better payoff conditions, a longer payoff period and lower interest rates that help startup owners manage their personal finances and business finances, while also helping them avoid additional expenses and drowning in debt.
Improves cash flow
Cash is the most liquid and thus most important business asset. A lot of fresh entrepreneurs don’t fully realize the importance of having a positive cash flow. Cash enables you to make immediate investments or pay for urgent expenses. Without cash, your startup business may easily go bankrupt, even though it’s generating good revenue. A good example is invoice payments. Allowing customers to pay via invoices is a good thing.
However, invoices take anywhere between 30 and 120 days until you can collect payments from them, i.e. until they’re due. During that time a startup owner still has expenses to cover, such as bills, taxes salaries etc. Without cash, you can’t manage those expenses and you must either find funding elsewhere or declare bankruptcy. Securing a business loan in such a case can help you take care of your expenses until you manage to find a more permanent solution for your cash flow.
Helps you out in a pinch
Many entrepreneurs start their business from home and they fund their endeavor on their own, in most cases, to avoid financial risks and additional expenses. In fact, In the U.S. 69% of startups are home-based and 82% of those businesses are funded by the owners themselves. As mentioned before, start up business loans can help entrepreneurs consolidate debt, improve cash flow and make investments when they need it the most. However, none of that will be possible unless you manage to secure a loan in the first place.
Banks are the first place many entrepreneurs go to, in order to get a loan for their startup. But, banks tend to look closely at the business owner’s credit history and credit score before they consider lending them financial support. If your credit score is bad, a bank may deny giving you the loan or charge you with extra high interest rates that simply aren’t favorable. That’s why it’s important to improve your credit score before applying for a bank loan or look for opportunities presented by alternative lenders that are more flexible towards people with bad credit history.
Helps you make an important investment
Running a startup business, or any business for that matter, is about taking initiative and sometimes even making a calculated risk. Investment opportunities come and go and they have the potential to yield substantial ROI. However, if you miss out on such an opportunity, it may take years before the similar one presents itself.
Having funds to make an investment is crucial in such cases and if you don’t have them on you, a loan can certainly make a difference. Paying off the loan will become easy once the profits from the investment start pouring in. Conversely, it’s important to be able to spot a good opportunity in the first place and avoid making a bad choice.
Securing a loan for your startup business can provide many benefits. It helps your business grow and develop further, while also helping you get out of bad financial situations and financial mistakes you may have made as an inexperienced business owner. Nevertheless, it’s always important to assess the situation first and decide on the best course of action for your business.
