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Are Business Start-up Loans a Good Idea?

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.

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Neither a Borrower nor a Lender be – is that a good motto to live by?

There is an old-fashioned saying ‘neither a borrower nor a lender be’ which means that the person will never borrow money or lend it to anyone. It indicates that doing either of these things is not right and should not be allowed. There are some people that decide that they will stick strictly to this. It could be that they have for their whole lives or that they want to start it at a particular point in their lives.  However, living by this can actually do more harm than good.

Not borrowing

Many people feel that borrowing can lead to trouble. It is true that sometimes loans can cause problems but that is not true for a majority of them. If you take out a loan and struggle with the repayments then you can get yourself into all sorts of trouble. However, if you borrow money and then repay it on time, it can be extremely successful.

The success of the loan can be determined by a few things. Firstly, your ability to repay it is really important. If you can easily manage the repayments with no stress and hassle then it could be classed a success. Also, it depends on what you use it for. If you use a loan to better yourself such as to buy a home, then you could end up significantly wealthier than you would have been had you not taken the loan. However, if you use an overdraft to go out drinking, then this is unlikely to help you to better yourself. It is also really important to make sure that you get the right loan for the job. Choosing the loan that will address your needs the best, that you can repay easily and that offers you good value for money will also make borrowing a much more positive experience.

Therefore, there is good and bad borrowing. It is always worth thinking hard before borrowing any money so that you can be sure that it is the right idea. You should think about why you are borrowing the money, which type of loan and which lender is most suitable and whether you will be able to repay the loan. If you spend some time thinking about this you should be able to make a decision about whether what you want to borrow money for will be a good idea or not. You should not dismiss all loans without careful consideration. Many people take on large loans in the way of mortgages but really benefit form them, especially when they retire and can live in their house with no worries about having to pay rent.

Not lending

You may think that you do not have enough money to lend to anyone or it is just something you would never consider and so this part will never apply to you. However, it might be possible that you will be lending money without realising it or that you get asked and have to make a decision.

Firstly, if you have money in an account with a bank then you are allowing them to lend that money to others. Obviously, this is very different to lending it directly, but your money is still being used in this way. So, if you feel that lending is not something you can do, then it is likely that you have done it a lot already and so should not be concerned about it.

You may also find yourself in the situation where someone asks you for money. You may instinctively feel that you will always refuse but this could change. If your child, sibling or parent asked you for money then it might be much harder to refuse. You will be tied to them in a different way that you might be to friends or other family members and it might be much harder to refuse.

It can be worth thinking about what you might do. You could lend to them but with terms attached. You may wish them to repay you at a certain rate or with a cost attached. This could help them out and might also help you to make some extra money as well.

It can be good to be open minded when it comes to borrowing and lending. It could help you and others significantly. If you close your mind to both of these then it could be the case that you will actually be making yourself worse off. Borrowing and lending can seem scary but they do not have to be. It is a case of making sure you research properly and feel that you can trust yourself and others. Many people do these very successfully and there is no reason that you will not be able to either as long as you are really careful when you do it.