Small Decisions With Big Consequences: Should Your Startup Take On Short-Term Debt?
Few startups don't face the need for more funding at some point in their path to success (or failure), but this decision shouldn't be taken lightly, even if the funding is in the form of a short-term loan. These small decisions may come with big consequences in a scenario that's already risky territory. Here's how to put this scenario into perspective for your new business:
1. Weigh The Costs
What would happen to your business if you didn't receive the funds? Are the consequences so dire that you simply can't survive without it? Because cash flow is such a major concern for small business and you really need to keep it moving, make sure the conditions of any short-term loan aren't going to be counterproductive to your long-term goals. For example, if the money can wait or you can secure it from other sources, such as investors, would your company be better off?
It's easy to panic as a small business owner, particularly if you're the one in charge of putting out the many little fires that seem to constantly burn around you. However, as with any loan, it's important to consider alternatives and what you ultimately end up paying.
2. Determine The Benefits
A short-term loan could bridge an important gap for your company, like seeing accounts payable through to when accounts receivable have caught up! Especially in the beginning, when survival is reserved for only the fittest of startups, a quick loan can keep you afloat. A fast loan may also facilitate your next great idea or company improvement if seeing it through requires cash the company just doesn't have at this time. While there are numerous very good reasons for taking out a loan of any time length, you have many facts to consider when ultimately determining the need.
3. Find Your Short-Term Lender
Short-term lenders will generally charge a higher interest rate, simply because they are offering you a loan of convenience or necessity. In any case, you should still have different terms available to you, as presented by different lenders. Just because the loan is quick doesn't mean it has to be desperate; compare terms and interest rates from multiple lenders which your company qualifies for and choose the most suitable option.
4. Repay The Loan With Top Priority
No new business wants to get into credit trouble, but unfortunately, expenses often pile up faster than profits. Nonetheless, it's important for the long-term survival of your company to keep your head high above water with debt. Most likely, you're going to need future loans and therefore need to keep your company credit-worthy moving forward. Earmark incoming profits to immediately be applied to your short-term loan, no matter what little fire flares up on you next.
Every dime counts when you're a starving startup, so watch your money, coming and going, and make even the short-term decisions you make have positive, lasting results for your company. For more information, contact a professional in your area or visit a website like http://www.advanceucash.com/.