If your small business is maintaining steady cash flow, and profits are starting to increase, resting on your laurels may not be in your company’s best interests. In fact, this could be the time to start thinking about expanding your small business to take advantage of the current momentum. Although expansion costs money, one way to finance your company’s growth is to take out a small business loan, keeping the following caveats in mind.
Monitor company growth
A short burst of company success may not necessarily lead to sustained growth. Track profits and expenditures over the period of a year or longer to ensure the business is ready to expand and primed to set loftier goals. With a reasonable expectation of ongoing or increased profitability, this can be an excellent time to take your business to the next level with the help of a loan.
Find a low-interest loan
Look for the best available rates on a business loan. Many lenders off a reduced rate when you opt for automatic monthly payments deducted directly from the company bank account or through direct deposit. Carefully consider the terms and check for fees if you need a small business loan during the expansion phase. It is usually best to opt for a fixed rate rather than a variable rate interest loan unless you have a well-developed plan to pay off the loan quickly.
Avoid deep debt
Although a small business loan might seem like a convenient way to fund anything the business might need, it is important to approach the process carefully and thoughtfully. Applying for a huge loan or several loans can land a company in trouble if it cannot keep up with payments or if the business begins to slow down in an economic slump. It is better to build the business slowly, repaying one small loan at a time, rather than taking out a massive loan that may soon lead to default. Avoid taking out a loan for intangibles, such as hospitality. Focus on necessary items like equipment or processes that will continue to help the company over time rather than serve a short-term function.
Make payments on time
Loan payments must be factored into a small company’s budget to maintain a solid credit report. One or two late or missed payments could jeopardize the company credit standing and limit future loan eligibility. If possible, pay a little extra on the principal of a loan payment with each payment to pay down the balance more quickly. Even one or two extra payments each year can make a dent in the remaining balance.
Getting a loan for a small business can help a company to expand operations or improve efficiency. It may even enhance the physical premises of the company. Take a careful look at the budget forecast for the next couple of years to be sure a loan is manageable and in the company’s best interests. Then look for the best loan on the market with terms that fit with your repayment plans. There is no such thing as easy money, and a professional loan should be taken seriously. Treat the loan as a business transaction that should be handled the way you manage other aspects of your company.