Being Smart: When to Get a Business Loan

If you have a business going, getting a loan won’t be that difficult. The most difficult part is determining the right time because there are many factors you need to consider; from understanding the type of loan to your current financial position and what you do with the money.

With this, you need to think carefully. To help you get started, here’s when it’s time to get sme loans in singapore:

When you’re ready to expand your physical location
It’s a good time to consider a loan if you’re ready to expand your physical location. This is easy to determine – you just need to observe. If your cubicles are bursting at the seams or if your new assistant had to set up in the pantry area, it sounds like you have outgrown your office location.

It’s a different setup when you’re in a restaurant business. If you have more customers in and out than you can fit inside your space; it’s a sign that your business is booming and you’re ready to expand your physical location. In these cases, you may need a term loan to finance your expansion. Before you commit, it’s necessary to think if you could cover your loan costs and still make a profit.

When you’re building credit for the company’s future
If you’re looking into applying for large-scale financing in the next few years, you can start with a smaller short-term loan. This is how you can build your business credit.

You must know that young businesses have a hard time qualifying for larger loans because they do not have a strong credit history. What you should do is to take out a smaller loan and ensure that you make regular on-time payments. This is also helpful because it allows you to build a relationship with lenders.

When you need equipment
If there is equipment that can improve your business, you should consider a loan to finance it. The good news is if you take out equipment financing, the equipment can serve as collateral for the loan. However, before you take out an equipment loan, you need to ensure that you’re separating actual needs from the nice-to-haves.

When you want to buy more inventories
You know that inventory is one of the biggest expenses for any company. It’s vital to keep up with the demand by replenishing your inventory. This is particularly challenging because you need to purchase large amounts before seeing a return on the investment.

To determine if this is a wise financial move for you, it’s important that you create a sales projection based on the sales of the past year. You need to calculate the cost of debt and compare it to the projected sales.

Bottom line
Essentially, you consider a loan when you have found a business opportunity that completely outweighs the potential debt. Whatever the reason, it’s crucial you determine the return on investment of the opportunity. This will require weighing the cost of the loan vis-à-vis the revenue you stand to generate.

Many entrepreneurs these days either underestimate the true cost or overestimate the profits. For this, you need to be careful and not be blinded by your enthusiasm. When it’s time to weigh the pros and cons, it can help if you perform a revenue forecast to ensure that you base your decisions on numbers and facts rather than your gut instinct.