Small Business Debt Loans: When Not to Search for Outside Loans

Given below are some reasons why you should not search for an outside loan. A loan requires certain minimum requirements that need to be fulfilled before you can become eligible for one.

Look over the points mentioned below and do not apply for an outside loan until you have acted on all of them.

No Collateral or Guarantors

If you do not have any collateral or guarantors, then you should not even think about applying for any outside loan, since this is a critical factor.

You could try to apply for various state grants; but if you are applying for a loan through the Small Business Administration [SBA], which is a government body, you will still need collateral in the form of property or other assets.

No Proper Business Plan

You will need a detailed business plan, especially if you are a startup company. You will need a proper business plan detailing your market research, your expected break even point and your financial details before any bank or financial institution will even look at your papers.

So, if you have not had the time to prepare your documents in detail, then do not approach any financial institution for a loan – your application will almost certainly be rejected.

Not Considering Your Running Costs Along With Your Start-Up Costs

Many businesses fail because the owner forgets that just starting a business with a loan is not enough. You will also need financial injections on a regular basis until your business is able to stand on its own feet.

If you apply for a start-up loan, you will find yourself marooned on a bankrupt island after a few months without any money to meet your day-to-day expenses.

That’s a lonely place to be.

Having Too Many Partners Feeding On a Single Idea

Many times, an idea may be quite good for a business – but if you have too many partners or investors, with most of them bringing in negligible amounts of money, then very soon you will find that there is not enough money to go around.

Your motto, if you want everyone to have a decent share in the business and sustain healthy growth, should be ‘the larger the number of diners, the larger the pie’.

No Cash Flow Plans

You will need a proper cash flow plan so that you are able to meet your daily expenses, fund your business’ expansion and hire additional staff.

If you plan to sell your products on credit without cross-checking your clients’ creditworthiness, or if you do not have a proper plan to manage your expenses, then your cash flow could dry up and cause a bottleneck in your business.

Make sure you draw up an extensive cash flow plan before asking for any money.

In order to qualify for any outside loan, ensure that you have acted on the above points and have a detailed plan ready. Only then will you be ready to approach a lender – and only then will you have a better chance at success in your business.