Moolah-Moolah

Owning and operating a small business from startup is often a time consuming and expensive endeavor(well it was for me…) particularly if you are just getting started. One of the most important components of keeping your startup afloat is making sure you have steady cash flow. However many times a startup company has a difficult time producing enough cash flow to maintain their overhead and invest more capital into other revenue producing sources to build the business.

So the next logical step for small business owners to acquire cash is to look into a small business loan. This is very tempting for smb owners because a loan will most likely get their business off the ground or grow their business. But take heed, before you head to the bank to apply for a loan, you need to take a good look at the pros and cons in acquiring a small business loan.

First, before you do anything you need to consider these options:

Can you borrow money from family or friends? If the opportunity to borrow money from family of friends presents itself make sure it is on the up and up. You should create a contract, and pay them on a monthly business. When money is involved I have seen many friendships and family ties go up in flames.

Can you finance a loan on a credit card? You probably would need to use your own credit card since you probably have not establish a credit history with your own company. If you have good personal credit and a high credit score you can probably get an interest free loan for a certain period of time before interests start accruing.

Can you cut overhead in certain areas to pare down your expenses? Go back and analyze your business and see if there are any areas in the business you can discontinue or delay until your company is back on its feet. Big companies do this all the time, and their term for it is called layoffs, layoffs, layoffs!

If none of the options above are viable options then going to a bank to acquire a small business loan should be the next step. Don’t get me wrong, many times obtaining a small business loan is not a bad thing and they definitely has its advantages. Here are a few…

Cash in Hand. When money is tight, small business loans can give you the cash you need to get your business off the ground or to expand it. For example, you’re going from being a stay at home mom, to the owner of a consulting business. You will need basic start up equipment, marketing, office supplies, website etc…This can add up and having the cash to take care of all of your start up needs at once can be handy.

Focus. A small business loan can help you focus all of your energies on making profits and getting your business back on track, rather than having to focus on how your going to afford that new brochure and advertising campaign.

Terms. The terms of a small business loan can be long enough that you have the confidence you will be profitable and able to repay the loan on a monthly basis.

However, for every good there’s a bad, for every head there’s a tail, and for every advantage there are disadvantages of obtaining a small business loan…

Interest Rates. You will pay back more than you borrowed. Basically, you are trading money now for money in your business later. Additionally, if you get a loan with a variable interest rate, you could be paying back significantly more than you bargained for.

Credit score. When you borrow money, there is always a chance that you will not be able to pay it back. This can lead to tremendous stress and a deterioration of your business, not to mention it will affect your credit score.

Starting and maintaining a business in the beginning can be an initial financial hurdle, however following your dreams and pursuit of financial independence can be worth the beginning stress and hard work. So take a step back and examine your options realistically and make the best decision for you and your business.