Is It Really Worth Taking On A Business Loan?

30 Sep Is It Really Worth Taking On A Business Loan?

Any business owner would argue their business is worth funding, but what if the funding is doing more harm than good?

Every good sales person will preach to you that cash is king right? Selling you the romantic notion that if only you had more money your business would grow, flourish and all the moons would align.

Well there is only one thing that should matter to entrepreneurs more when it comes to their business’s health than the moon, and it’s the one thing that keeps your business from eventually crashing…we call that PROFIT.

Now I know your saying why are telling me this? That’s pretty obvious. Obvious yes and there’s no harm in being reminded that having a healthy true position of your margins can mean either steady growth or sadly just a job and eventually a potential business failure which can be assisted by other third party influences if you don’t get it right.

This brings me to my point…

How long will you be in business for and will the loan help or hinder?

Every day we have businesses using Loandesk, not asking about loan products but rather what do I qualify for? And we wish we could help in every situation. Entrepreneurs know how hard it is to acquire new customers and retain them through on-going relationships and exceptional customer service. Lenders we work with are no different, they like to think they can help everyone but the fact is they must also choose which ones they know fit the loan correctly and ultimately end up better off for choosing it.

When assessing profit & product fit, most lenders at Loandesk look at forward potential rather than past performances.

In lots of articles we talk about product fit, do your research & ask the hard questions. When it comes to assessing your own profit margins you need to take a serious look at whether the loan rates & fees makes commercial sense. Taking on a finance facility when your margins are only slim may seem fine when sales are punching through the roof. Any downturn, loss of customers or non-payment coupled by the cost of funding can be crippling for a business and ultimately end up financing you out of existence.

When matching you to a lender we sometimes take a transactional view to checking your margins and ensuring we’re helping you rather than cutting into margins. We like to dig into what margins are on future sales when using the funding. We don’t like to look at past profits as sometimes there are lots of factors which affect losses or gains. If your margins are healthy on products you produce or services then we know your on the right track.

All too often we see business owners taking on expensive finance options because “it’s my only option” or “I need it quickly”. TAKE IT SERIOUSLY. You need to be actively seeking other options and lenders to weigh up if it’s really the right fit. Don’t let someone talk you into something that’s not sitting well with your gut.

Good lenders and sales people should have the experience to know when to let potential borrowers know if the cost of taking their facility will end up with cheers or tears.

About Leigh Dunsford

I am a small business finance & lending columnist at Loandesk, teaching entrepreneurs what loan options are available to them in Australia, explaining the differences between each loan type & how to position themselves for the best chance of getting approved for their perfect loan. My thoughts have been published on Startupsmart, CEO Magazine, Smartcompany & more...

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