The first and simplest rule of making money is that you need to invest some money to make more money. If you have wondered why some of the owners of successful start-ups take home smaller salaries, it is because they are using most of the money the business is making to invest back into the business.
Now that we agree that we need money to make more money, we need to figure out where to get the money in the first place. A lot of people have a lot of money to invest in their businesses, but we are not here to talk about those people. The other options are to borrow it from someone you personally know. But things can turn really bad, really fast when you mix personal relationships with the professional ones. Unless you really trust the person, you are safer borrowing it from professional lenders.
Even when you know where you are borrowing the money from, you need to know a few things about your own current situation before you enter the market as a borrower. Below are some of the questions you need to ask yourself. Having the answers to these questions will make the rest of the process a lot easier for you.
1. What do you need the money for?
Do you need the money to hire more people? Do you need the money to buy more machinery? Or do you need the money for daily expenses. Whatever be the reason, knowing why you need the money can help you decide a few things like how much money you need to borrow in the first place. The reasons would help you estimate how much you need to borrow, and also if you really even need to borrow the money in the first place. The use of the money will help you understand in how much time you will be able to repay the loan amount too.
2. How much money is needed?
This is crucial because you don’t want to end up with insufficient money to meet your business objectives. On the other end of the spectrum, you also do not want to borrow excess money because remember you have to pay an interest that depends on the borrowed amount. A good way to figure out how much money you need is to calculate all the costs of achieving your business objectives set for the borrowed money.
3. How does the credit profile look?
Your credit score is something that can work in your favour, or against you, depending on whether it is in good standing or not. A good credit score will give you the bargaining power as the lender will know that you are more than capable of returning the amount, thus making you a low-risk customer. A bad credit score will act in the opposite way, where the lender gets to call the shots as they will know that there won’t be too many lenders willing to give you money.
4. How soon is the money needed?
Would it be nice to have the money so you can expand your business, or do you need the money immediately to ensure the smooth functioning of your business? You will be surprised at how many borrowing decisions are made depending on the processing time, sometimes even ignoring the best interest rates on offer.
5. What’s the repayment strategy?
The interest amount can pile up, and at a very rapid pace at that, if you are unable to pay the money in a timely manner. Ask yourself if you have the right strategy in place for the repayment of the loan. It is a good idea to keep contingency plans in place too in case of any emergency or unforeseen situation.
With these answers ready, you are well on your way to finding the best business financing option.