As long as you are attentive and passionate about your small business, your market will grow and there will come to a point that you will need a bigger working capital for your operations. By that time, you might consider getting a loan. But do you really need it?
Getting a loan is not bad, for as long as the amount you'll get from it is properly allocated, wisely managed and that you are capable of paying it back within the agreed period. Lending firms and banks are businesses too. That's why they charge interests. You'll end up paying a way bigger amount than what you actually received. To help you in making a decision on whether to get a loan or not, here are some items you could consider:
- Save up. The bold decision of starting your own business, in most cases, is not an overnight process. Along with the dream of becoming a business tycoon someday, you need to wake up to the reality that a business would incur operational expenses too. Thus, the most practical thing to do is to save up.
- Check for other sources of funds first. If you have a current job, instead of giving it up to go full-time on your business, you might actually want to set a portion of your salary to fund your business. Who knows, you might realize that there's no need for a loan anyway.
- Forecast your future earnings. You can take calculated risks by forecasting your possible earnings every month. Is it realistic and achievable? Will that amount be sufficient to pay for your monthly amortization should you decide to take a loan?
- Always think of the worst case scenario. What if the market doesn't respond the way you've expected it? You know that even if your business is not profitable, the monthly loan amortization continues. How will you be able to pay for the loan?
- Cut down on unnecessary expenses. Cut down on expenses that you don't really need at the moment like paid advertising. Advertising your business is really important. And nowadays, there's no better way to promote a startup business than to promote it via the social media networks. It's effective and best of all, it's free. Someday, you might see the need for paid advertising (like a tv ad, or a billboard), but that means your business has grown already and that you should have sufficient funds to shoulder the cost.
As much as it is advisable to keep away from loans, there are instances when getting a loan for your business is helpful too. But before availing it, you should know exactly why you need it and how much you need. I don't recommend getting more than what you actually need. After all, a loan only serves as a financial assistance; your entire business should not fully rely on it.