You have decided to open your own startup, which is a really great and inspiring idea. But you know that you don’t have the money to buy everything you need just yet. What should you do in that case? One of the best alternatives you could think of is to get a business loan. But before you take that step, it is extremely important to know some of the do’s and don’ts of startup business loans. That way, you will be prepared to handle anything that might come your way. And because we want to help you out, we researched what you should and should not do when applying for a loan. Let’s see take a look!
Startup Business Loans Do’s
Borrow When the Time Is Right
It is important to have a clear plan in mind, detailing every step you have to take in order to build your startup. Finding the precise time to get a loan is one of them. If you get it too early, you might find yourself spending money on other things. But if you get it too late, it will affect the development of your business. You just have to find the balance.
Borrow Exactly How Much You Need
This is a very important step, since you can’t apply for startup business loans if you don’t know the exact amount of money you need. Make sure to take into account revenue and projected costs, and also keep in mind positive and negative projections.
Create a Real Budget
If you want the bank to give you a loan, you will have to prove to them that you will make profit. Don’t overestimate your profit. If you don’t back it up with concrete evidence, the bank won’t invest in your business. Provide real numbers, and don’t rely on potential, product hype, and so on.
Startup Business Loans Don’ts
Don’t Apply for a Lot of Loans
You might be tempted to do that at the beginning, hoping that at least one of them will provide you with the money you need. But you should know that applying for a lot of startup business loans at once can have the opposite effect. It can damage your credit score, which will make it more difficult for you to actually get a loan.
Don’t Underestimate Expenses
No matter how much you plan ahead, you will never be able to anticipate the exact number of expenses that you will be facing, especially in the first year. If you want to make sure you have enough money to deal with all of them, add another 25 to 50 percent to your expenses budget.
Don’t Pay the Loan Too Fast
You might wonder why. Why shouldn’t you pay the loan and get it over with if you have the money? Well, even if your business is booming and you do have the money, a startup needs a lot of available funds for you to invest into it. And you might run the risk of paying the loan and then needing the money for an unexpected purchase.
Before applying for a startup business loan, it is important to keep in mind the things we’ve mentioned above. Don’t forget to think everything through more than once before making a decision. That being said, good luck with your startup!
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