Many new business owners think that they should take out loans for every little thing they might need or want that relates to their business. Whether it’s new inventory or a company car or fresh signage, they assume that it’s better to take out a loan. Unfortunately, this line of thinking can lead to major debt, so here are five reasons not to take out a business loan.
To Launch a New Business on a Whim
Starting a business isn’t just about following what you see on the Internet; it’s about thoroughly researching an idea before investing any money in it. Never take out a business loan until you’ve determined that you really want to start — and will follow through with — a business idea. Don’t do it just because the check-out girl at the grocery store said it was the fastest-growing industry in the world. Take time to investigate the idea, talk to current industry leaders and discuss the idea with future business partners before signing up for a loan at the bank.
To Satisfy Credit Cards or Other Loans
It is never a good idea to apply for more credit when your current credit is maxed. Taking out a business loan to cover credit card debts or other loans will simply mean that you are too overextended and you might have trouble meeting your minimum payments. Furthermore, lenders don’t look favorably on businesses that continually accrue more credit as they go, and they might ask you to personally guarantee the loan or to offer collateral. Instead, work on paying off your existing debt before taking on new debt.
To Make Another Investment
Impulse purchases are never a good idea, and if you can’t afford that new P.O.S. system or the remodeling fee for your offices, put those desires on hold until you have the up-front cash. Taking out a business loan to cover an impulse purchase will put you in even greater debt, and even if you don’t maximize profits through the purchase, you’ll still have to repay the loan. Again, wait until you have the cash to purchase anything new.
To Take Advantage of a Good Loan Offer
As a business owner, you will probably receive countless offers in the mail and in your e-mail inbox about unbeatable business loan interest rates and the like. Just because they taunt you with pretty colors and low APR numbers doesn’t mean you should take advantage. If you don’t need a business loan — and especially if you have other debts — then don’t sign up.
To Consolidate Debts
This last tip isn’t universal. If you are good with your money and have simply landed in a bind, you might want to consolidate your debts by taking out a carefully selected business loan. However, if you just spend money on a whim and haven’t learned how to budget your money effectively, consolidating your debts isn’t going to fix the problem. Instead, work out a way to manage your money effectively rather than looking for a quick fix. You’ll be better off in the long run and you’ll save yourself the paperwork.
For questions about this topic or any other business law questions please feel free to contact Brandon Woodward, Esq. directly at email@example.com for more information.The Law Office of Brandon Woodward P.A. is pleased you have visited our web site or read our blog. The materials and information contained here are provided for informational or entertainment purposes only and are not to be considered as legal advice. This work by Steve Thompson originally appeared April 12, 2007 at Yahoo Voices. .