Starting a business can be scary. Things get even more frustrating when you have a big idea, but lack the funding to finance. The question ‘Should I self-fund or should I take a loan to finance?’ comes in, and things get very confusing. Be calm. The joy of business is in its uncertainty. Things could turn out just fine and your dreams achieved even way beyond your imaginations. Even if things do not turn out exactly as planned, other opportunities always come through. It is the same concept you have to apply when taking a loan. Things will always work out, as long as you make sure you plan properly before taking a loan (if the loan is the best option for you). So, before you take that leap of faith to seek credit to finance your dreams or expand your business, here are a few questions to answer:
How Much Do You Actually Need?
Yes, you need money to start or expand your business but, how much? This is the first and most important part of the whole process. You do not want to ask for more than what you need or can manage, and be stuck with the impossible task of paying back. You also do not want to ask for less and be stuck not having enough to achieve your goals. You need just enough to start you up, and keep you afloat long enough to you can start paying back.
How Exactly Are You Going to Pay Back?
Yes, your business idea is great, but is it profitable? And, how profitable is it? How consistent is the flow of income? How sustainable is the business idea? You need a business plan with clear income projections. This should guide your decision on how much you can afford to payback on a monthly basis and this will inform the total loan amount, the tenor of the loan as well as the interest rate that you can afford to pay back. Do not bite off more than you can chew. Yes, it is very possible that things would turn out even better than you imagined and the business would bring way more than your projections but, you have to be prudent. Plan for the worst and hope for the best.
How Long are You Going to Pay Back For?
Before taking such a huge risk, you have to be sure that your business investment would be sustainable enough to last as long as your loan tenor. Imagine taking such a huge risk for a business that will only last for a year and close-up right after. Then, you are stuck with looming monthly payable and no means of paying back (asides from maybe eating into your savings, or losing your assets as collateral). A feasibility study on the sustainability of the business would help you put things in perspective.
Who Are You Borrowing From?
There are many institutions that provide credit facilities, even with some specific credit products designed for women. However, while some financial institutions make it easy to access funds, others are quite complicated. Identifying the right institution that aligns with your business goals and financial capacity is very important. Some important attributes to consider when selecting a lender includes: the interest rate (if the interest rate will swallow your profits, find another lender), the flexibility with the terms and conditions (do not enter into a loan agreement that will potentially kill you), accessibility to lender and funds, amongst others.
Once you can answer all these questions positively, you are ready to take a loan. If there are still negative responses to the queries, do all you must to address them before taking that leap of faith. Ultimately, you have to be confident in yourself and your business enough to move forward with this decision. If you are not confident enough, then maybe explore other options to raise funding.