Let’s assume you’ve weathered the storm of the recent economic downturn. Now, your business is starting to pick up again. You might be planning to expand your company, and you’re considering getting a business loan to do it. But is the time right to do that? Well, looking at it from the macro level, there has never been a better time, assuming you qualify. Interest rates are at an all-time low. With many companies not faring as well as yours, the opportunity to grab up some market share is huge. However, there are some important considerations for individual companies to consider. I’ll expand on that idea, in today’s article.
Before you get buried in the “how” of getting a loan, improving your credit, increasing your revenue-to-expense ratio, etc., it is important that you fully address the “why.” This isn’t simply a matter of saying, “I have this idea of doing X and I need amount Y to pay for it.” You should work backwards from the result to see how the idea pans out. Let’s look at an example to illustrate what I’m talking about.
Let’s say you run a rock climbing gym for which you plan to add a small specialized clothing shop as an additional source of revenue. That might be a great plan, but is it worth borrowing money for? What price can you get on your merchandise at retail? Can you get a better deal if you sell different product lines, or by sticking to one dedicated brand for a discount? How many do you expect to sell each day, and what do you believe will be your price point and profit margin based on your market research?
Gather these numbers in combination with any invested costs, building upgrades/expansions, and the like. Compare them to your likely business loan terms. Do the numbers not add up? You’ll need to improve your idea to make it more profitable or less costly. Once you’ve done that, you should look for funding.