Should I borrow money to start a business?
This is one question many who want to start a business or who are in business find themselves asking themselves from time to time.
The issues of business and loans is a very tricky one more so for start ups or for small businesses. Some even believe loans are cursed and getting them into your business would spell doom on the business.
One thing I would like to point out from the start is that in business, cash flow is king. In simple terms you need to always have money to run the business and lack of it will spell doom on the business.
So regardless of where the money comes from it has to always be there. Many businesses have collapsed as they wait for their next pay day/cheque. Many businesses have collapsed with lots of money owed to them out there.
The first thing any business owner should do is ensure that the business's ability to access money whenever needed is so high, where its coming from not withstanding. That said there are two sources of money into a business i.e you and other people.
So you either personally have the money to inject into the business and keep it afloat or you get the money from some else and these include financial institutions, investors and those within your circles. Of course of those we've named financial institutions/financing firms are the easiest source of money other than yourself.
So this makes loans a necessary evil in business whether your starting or whether your already operating. In my opinion loans aren't usually the problem but the people borrowing are.
Some borrow and make the most of it and others borrow and get hit hard. In both instance the constant is the loan with the variable being the person getting the loan. Loan plus the right person is equal to success and loan plus the wrong person is equal to doom.
So, yes you can get a loan to start a business or to grow your business. Loans are one of the easiest ways of financing a business however you have to consider many things before you take them and thats totally down to you as an individual i.e qualify yourself first.
The first thing is to never forget that that's not your money hence the need to treat it that way. Make sure you have the financial discipline to handle and manage the money and get an accountability partner if possible. Some one you respect that can hold you accountable.
If you get money to grow your business, don't say let me first use some of it to buy a car or throw my girlfriend a birthday or baby shower, she's been on my case. I'll replace it.
Chances are high you won't it's the reason your'e borrowing in the first place.
Before you take the loan be clear about what it is you need the money for.Never borrow more than you need or less than you need. If you need Shs 50 million to finish up your rentals and then start paying back using the very rentals never take a loan less than Shs 50 million or more as you'll spend the extra on non money generating things.
Pay back time will arrive and the houses wont be done to start generating money. Before you take a loan be clear about where the money to pay back will be coming from?
Will whatever your doing be able to pay back on its own in time? Will you need another source of income to pay the loan as whatever you've put money in grows to start being financially rewarding to contribute to the loan repayment?
Most importantly have a system in place that protects this money more so from yourself because 70% of the times your (borrower) biggest threat to this money. Have a separate business account on which you put the money. Have a book keeping system in place to track every cent of the loan spent visa view every coin made thanks to the loan.
Never hold back paying your lender for any reason when the time to pay comes and if you cant pay back genuinely reach out to the lender in advance and explain your situation. Relationship is key here build it asap.
Avoid expensive loans, shop around for cheap loans and negotiate favourable terms.
AVOID MONEY SHARKS at all costs. They don't work under a regulated environment so their terms of operation are always outrageous and exploitative.
Last but not least never borrow simply because there's a willing lender but because there's a reasonable need to do so.
If you can follow these simple pointers, the chances that your loan will be beneficial rather than detrimental are way higher.
Business need money to run and loans are your best chance however how you approach them is what makes the difference.
Jaluum Herberts Luwizza is a Speaker,Writer and Contributor with the Nile Post.He is also a Business Consultant at YOUNG TREP East Africa's No.1 Business Management and Consultancy firm that helps people start and grow profitable businesses.
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