Financing a business through loans may seem a very risky tactic for both entrepreneurs and owners of small or medium enterprises. However, the key is in the use and control that is given to it to work as a tool to boost its development.
Next, we will outline the points that can help you to use credit as a growth tool and that does not become a risk for your finances.
Risk area for a business credit
# 1 Ask for more than you can afford
The first question that can end in a negative experience, is to accept or apply for a loan for an amount that exceeds your ability to pay. Ideally, before looking for a definitive offer calculate the ability to pay you have and based on that you make a decision.
To easily calculate your ability to pay, you must add the expenses generated by your business and outstanding debts; once you have the amount, you must subtract it from the total of your income. This way you will be able to know how much you can allocate to the payment of your “new credit” and choose the most convenient offer.
# 2 Use it without control
When you do not keep track of how you use the credit and start spending it on stocks for which you did not request it, you may end up using it in a very short time. We recommend that you make a budget so that you define the amount you need and what it will be used for.
According to our Report on credit and growth of SMEs, 44.26% of employers use it to buy inventory or raw material, while 14.82% to invest in machinery and equipment.
# 3 Do not pay on time
The delay in the payments established in your contract, can end up making the credit for your business end up being much more expensive than what it represented in the beginning. Since, for each day that you fall behind, the default interest will be added in large amount along with the pending and scheduled payments that you have.
One advice we can give you is to look for the credit that offers you the best condition in terms of interest. Some institutions give you the benefit that the interest rate is fixed, this benefits you so that in the end your credit does not increase in cost and it will be easier for you to liquidate it.
# 4 Let it become debt
If you can not finish liquidating your loan, then the risk becomes imminent. Since in addition to the conditions established in your contract, you will end up generating a bad credit history that in the future will limit you in the opportunities that you have of being able to acquire a new credit.
According to another study conducted by Craneloan and Bradloan in 2018, 26% of the people consulted do not know their situation before the Credit Bureau and 13.3% claim to have a bad score.
Now that you know the issues that can turn a credit for your business into a risky decision and how to avoid it, decide to use the loans in your favor and give your business the momentum it needs for success.