For many people, “debt free” sounds ideal. When talking about personal finance, many would consider being debt free as a good state to be in.
However, when it comes to business, it does not always ring true.
Entrepreneurs (seasoned or otherwise), will most likely agree that debt and the payment cycle is an integral part of growing a business and sustaining its growth.
However, make no mistake about it, a start up business loan (or any business loan for that matter) has the potential to turn into a financial catastrophe if you are not careful.
Regardless if you’re applying for your first start up business loan or you’re an experienced entrepreneur negotiating your next expansion step, it pays to always dig deeper before you sign on the dotted line.
To get you off to a good start, below are some of most common start up business loan mistakes to avoid if you want to keep any potential financial disasters at bay:
Not knowing the difference between what’s “nice” and what’s “necessary.”
One of the key rules to remember prior to taking out a business loan is to only get a loan when it’s absolutely necessary.
Purchasing needed equipment, investing in extra stocks in anticipation of a holiday rush, or investing money in a new location are just some of the scenarios you can file under your “necessary” list.
Research junkets, cosmetic renovations, and other exciting but unnecessary expenses will have to wait until you have extra resources.
The line between “nice” and “needed” can be very fine so make sure you are able to accurately tell one from the other as it can sometimes spell the difference between success and financial disaster.
Not doing proper (or any) research.
Consider it wise to invest in some research time, especially if it’s your first time to apply for a business loan.
Know what you are getting yourself into. Compare what potential lenders have to offer. List down any questions you have in mind and ask for enlightenment when necessary. Otherwise, you won’t be able to make an educated decision if you don’t know the ins and outs.
In addition, timing is also crucial. With that in mind, make sure you don’t take on a debt too late or too early or you won’t be able to make the most of the money you will be borrowing.
Not taking into account all the costs.
While you may already know that business loans cost money, there will always be cases when figuring out the exact amount you will have to pay can be tricky.
For starters, annual charges, initiation fees, application fees, service charges, and origination fees are just some of the charges you need to take note of and ask about. Make it a point to always read the fine lines so you are aware of the exact amount you need to pay.
Not trying to negotiate.
While you can’t always negotiate everything, it is always a good idea to always give negotiating a try. In some cases, negotiating can result to reduced fees and improved payment schemes, among other things.
When you are not confident about your negotiating skills or when you don’t have any idea how to go about the negotiating to begin with, you can always invest in the services of a trusted loan broker.
In essence, debt is not a bad thing altogether. If truth be told, just like money, it is an amazing tool but a terrible master. Fortunately, as long as you do your research, cover all the bases, and avoid potential mistakes like a plague, you can leverage this helpful tool and make it work to your advantage.