If you are thinking about starting up a business then it is likely that you will need to find a way of putting some money into the business. Some people will be able to use money that they have, perhaps because they have built up some savings or they may be able to find an investor. However, there may also be people who will need to borrow to start-up their business but they may worry about the impact of having a loan.
Advantages of a loan
There are many advantages of having a loan to start up a business. The extra money will be able to allow you to start up much more easily. You will be able to use it for all sorts of thing that you might need. This could include buying stock, renting premises, setting up a website, advertising, employing staff, doing training courses and all manner of other things. What you need will very much depend on the type of business that you are starting. Most businesses cannot be started without at least some money. Even if you are providing a service that does not need advertising you will need to make sure that you have enough money to support yourself while you are waiting for income to come in.
Having a nice chunk of money can also allow you to do more with your business. If you can only buy a small amount of stock, for example, you will not be able to sell that much and you will have to wait to sell that before you can buy more. If you work like this then it can take some time before you are able to really get the business building up. Extra money could also help to pay for advertising which, if done well, could help to spread the word about the business and help you to get more customers more quickly. You may also be able to do training courses yourself so that you can learn about keeping accounts, employment law, marketing and all of the really important things that you need to know when running a business.
Disadvantages of a loan
Of course, when you take out a loan, you will need to repay it. This means that as soon as you have started the business you will need to think about where the money will be coming form to pay those monthly instalments. It could be easy enough to find if you are immediately successful but often this is not the case. It can take time to establish a customer base and start to get the money coming in. This means that you may have to make sure that you have some sort of back up plan for making loan repayments to start with.
You may also find that lenders may be reluctant to lend money to a new business. Even if you come forward with a business plan, you could find that you will be unable to secure a loan from a lender. They may be even more reluctant if there are problems with the economy. This means that you may have to come up with alternative plans for borrowing. Some people borrow money by way of a personal loan instead. This means that they may have to use their home as collateral. This is a big risk as if you cannot make the loan repayments you will not only lose your business but you could risk losing your home as well. Even if you do not use your home as collateral you could still have bailiffs coming into your home to take things of value to sell if you do not keep up with payments. Therefore, you need to be really careful.
It can be a really tough decision. Without a loan your business may not be able to grow and thrive or you may not even be able to start it up at all. However, with a loan you will need to make sure that you will be able to cover the repayments. It can be worth thinking hard about the risks and benefits to decide whether it is a good idea. Looking hard at the figures as well and working out whether what you have estimated is realistic can be worthwhile as well. It can be very hard to actually work out how much value a loan might add to a business but it is well worth a try. If you can buy a bigger variety of stock then you may attract more customers and more sales, if you can do more advertising then you can sell more and things like this. But you have to decide whether what you put in with the loan will actually result in you making more money than the cost of the loan. You want to make sure that it will end up in generating you a profit.