Business loans or really any kind of loan comes with a lot of questions and should not be considered lightly. Me and so many others have paid for the ramifications of applying for loans and not getting a full picture or making wise financial decisions.

In fact, in today’s society, it’s not out of the ordinary for people to be in debt based solely on their own financial illiteracy. A lot of people are confused about the ins and outs and financial terms.

It’s a lot of homework for sure, but for the sake of this post, I want to focus on a single question:

Should you apply for a business loan?

Because the answer isn’t a clear cut yes or no answer. With any kind of loan, you need to look at the factors surrounding your situation. Here are some things that I would consider when I’m considering getting a loan.

Should You Apply For A Business Loan?

What’s The Best One I Can Get?

The first big thing to figure out is what type of loans you can even get in the first place. After all getting a loan isn’t a simple process and you’re not guaranteed to get the loan in the first place.

On top of that, there are different types of loans which all serve different purposes. Take these working capital loans. They’re quality loans, however, you can only use them in your day to day operations.

At this time it’s also worth asking what is the most suitable loan for you too. Looking at the working capital loans I linked above, they’re certainly great in the amount they provide. But they might not exactly fit the bill for you. This brings me to my next question.

How Much Do I Need?

Not to mention how much is ideal considering the size of your business. Going back to those working capital loans those loans may be worth it if you’re planning on expanding your business. You don’t really need those loans if you’re only planning on stabilizing.

With any type of loan, it’s important to prepare some kind of budget for yourself and crunch some numbers. It’s not the most exciting stuff, but hey it is your life and is something smart to do if you wish to grow and not be a slave to debt.

Getting a ballpark range for how much you actually need is key as some loans can serve multiple purposes. Again it depends on the loan you’re getting but applying for general business loans means you can spread the money around to various sectors of your business.

Even with things like student loans you can put some of that money into investment accounts or into saving. While that may not be the exact case with a general business loan, the broader the loan terms are, the more flexible you can with it in how you spread it out amongst your business.

What Problems Would A Loan Fix?

A massive cash injection can be a feel good thing for all of us. It’s akin to winning the lottery and making a lot of progress. But the thing with a loan is that those feelings are temporary and reality reminds you that you’ll need to pay that back.

Just like with student loans, there are good repayment programs, but repayment of loans can be completely avoided by asking the question above. What exactly will a loan fix in terms of your problems?

Large sums of cash is nice, but you need to make sure that the money is being put to good use. That in the end you’ll be able to make enough money off of what you’ll use it for you to comfortably pay back the loan.

In other words, the money you use on the loan is like an investment. You don’t want the money from a loan to be put into something that will earn you little or no returns.

I made that mistake of pursuing an accounting career only to become a writer. I still have to pay that debt back and it’s been a huge pain for me ever since I graduated.

So consider where the money is going to be put towards and ensure that you have a chance of success. After all, business is business and sometimes you’ll fail. But what matters the most is you have a chance of recouping a fair bit from it.

Should I Apply For A Business Loan?

With all that information, I believe then and only then it’s worth asking this question one last time. Now that you have a better grasp of where the loan is going and of your situation, you have a clearer picture for this answer.

But I’d go a step farther with this question specifically. I’d also recommend asking yourself why?

Why is this the only option?

Why are you in such a large need for a loan?

This isn’t to discourage you from applying, but typically when someone gets a loan they are at their wits end. They’ve been turned down at almost every corner. And at that moment it’s worth considering whether a loan will fix that or maybe you need to shift your mindset or your business a bit and try again.

Food for thought.

To your growth!

Eric S Burdon

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