Should you get a business loan?

Written by: Alice Robinson

Navigating the world of business loans can be complicated and risky, especially for small businesses. If you cannot pay that loan back, it could be the end of you. This is often the reason that small business owners will avoid taking on a business loan but is this fear actually holding them back? It depends on what you are using the loan for!

When funding investments:

Business loans are commonly used to fund investments like new machinery or a new office building if the business is looking into expansion. The question to ask yourself is “how much money will I be making from this new investment?” You should be able to earn back the loan money through the investment, although it may take some time. If the numbers are uncertain or look risky, do not take the plunge before seeking external professional advice.

Covering wage costs:

If you are looking to expand through hiring another employee but cannot currently cover the wage costs, pause for a minute. What is the employee doing? How much value will they add to the company? It is likely that it will take an extensive period of work before they even start to earn you back your loan repayments. Is it worth it?

Adding liquidity in your cash flow:

Just need some day to day cash or a safety net for your accounts receivable? You may be able to rearrange and rework your budget so that you can build this money supply yourself. Do not go seeking loans for this purpose unless you have thoroughly checked your books and readjusted your cashflows to maximise efficiency first. A loan for this purpose should only be used once all other options are exhausted.

In all situations, it is good to receive external, professional advice on loans, especially for small businesses. There is no need to be afraid of the loan, as long as you have done the research and worked the figures beforehand. Your Growth Focus accountants and business advisors are more than happy to answer any questions you have or help you run through the numbers before you make that leap of faith.

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