Thinking of borrowing money for your business? Whilst debts are often best avoided, there are times when borrowing is essential for a company’s success. Here are five good reasons to borrow money for your business.
Covering startup costs
Launching a new business can be costly. Saving up the necessary funds could take years in some cases – this could delay your plans of starting a business and allow time for other budding businesses to steal your gap in the market. There are lots of forms of startup finance available. Ideally you should stick to specialised business loans – whilst some of these can require a higher credit rating and may even be slower to process, they often have much lower interest rates than personal loans, saving you money in the long run.
Affording emergency repairs
If an expensive machine breaks or there’s a leak in the roof, this could be a suitable time to borrow money. A business credit card could be ideal for such expenses, providing they are not too costly. There may be times when you can take out insurance to pre-emptively cover emergency costs, which could save you having to borrow money. This could include commercial property insurance to cover damage caused by fire or theft or a warranty on an expensive machine that covers the cost of repairs if there’s a fault.
Avoiding cashflow problems caused by late paying clients
Late-paying clients could drag you into debt too – their money could be what you need to pay the bills. In order to avoid getting into debt with suppliers with whom you may be trying to keep a good relationship with, it could be worth taking out a loan in the meantime. Invoice factoring is a specialised form of borrowing for this purpose – you get lent the money that you’re owed until your clients finally pay up, at which point you then pay this money back to the lender. Most invoice factoring lenders charge very little interest, but can only be used if you can prove you’re owed money.
Making low-risk high-return investments
There may be times when you need to spend a lot of money initially in order to make a large return in the future. Providing that there’s little to no risk of losing your money, you may want to consider borrowing money to fund these investments. A good example could be installing solar panels on your property so that you can generate your own electricity and never have to pay an electricity bill again. You shouldn’t take out loans when investing in shares as the risk that you may not make a return is higher.
Expanding your business
You may also need money to expand your business – by expanding you could make more money in the long run. This could include moving to a new premises, buying new equipment or hiring employees. Make sure that you’ve got a solid financial plan before borrowing money for this purpose. You could even seek out help from investors as a way of getting this funding.
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