Factors to Consider Before Applying for a Business Loan

Meta description: Evaluate the current financial status of your business with an open mind, Determine how much you earn and spend and have a plan before signing up for a loan.

Perhaps you and your friends have long dreamt of opening your own restaurant that serves your favorite dishes. And you should, as there’s nothing like the feeling of a dream business come true. Imagine opening your own shop and getting to do what you enjoy doing on a daily basis. Or maybe your parents want to open their own flower shop and you want to fund it. That’s awesome too. 

The chance to do what you love to do is indeed a very attractive one. You get to sell products or services you’re passionate about, and there’s  the freedom of being one’s your boss. You can structure your days the way you want them to. No one will ask where you are or what you are doing, right?

Wrong. The freedom that business owners have is often overrated and exaggerated. People believe that having your own business means you no longer need to rush to work or work long hours to finish a deadline. Contrary to popular belief, business owners actually need to work harder. Some entrepreneurs even confess to working constantly 24/7, regardless of season.

Being a business owner also means you are expected to come up with a financial solution, whether it’s for starting up one or keeping one afloat.  One option for either  is to apply for a loan. However, do not rush into it. Make sure you are dealing with a singapore online money lender. Here are things you need to consider carefully before going to one:

• The projected income of your business in the next 12 months

Passion and hard work can only take you so far. As a business, you need to have revenue and your income has to be more than what you spend. If you have employees and staff, you also need to pay them enough, because  they will leave if you don’t. Simply put, your business will eventually close if the income is not enough. This is the difficult side of business that is not often talked about.

So, before you sign anything, you need to determine how you will keep your business profitable enough to pay and comply with loan payment terms. You also need to refine your projections by limiting the scope to 6 months or even every quarter. After all, market conditions are always dynamic. Income often fluctuates for entrepreneurs. There are peak seasons and not-so-good seasons. By knowing when these seasons are for you, you will be able to choose wisely when to avail of a loan and what payment terms would work best for you. 

• The projected expenses of your business in the next 12 months

If your projections show that you will have considerable income in the next 12 months, your tendency is to get too excited. This is not an accurate way of looking at things. As a business owner, you need to be aware of how much you spend and how much things are costing you, all while you think of creative ways to expand your business. 

Although you need to be aware of the costs to be able to use your capital and income responsibly, avoid falling into the trap of being hyper-aware. Creativity is necessary for growth and you will have to balance between knowing where your money goes and knowing the impact you should aim for.

If you are expecting a big chunk of your income to go to a big expense in December, you have to save up in advance for the payment of your loan in that month. Otherwise, you will have to choose between what your business needs and being able to pay your debt on time.

• Payment terms and how you will comply with them

Now that you have good estimates on your income and expenses, you can better formulate your payment strategy. Perhaps you need to remove a slow-moving item from your shop’s inventory or delay buying a piece of expensive equipment for the kitchen. 

Instead of cutting down on costs, you can also increase your marketing and promotional efforts. Re-evaluate your sales strategy. Who is your target market? Is your target market still responding to your marketing efforts? How do you translate this engagement into sales?

Another option would be to negotiate the loan terms with the money lender so that the payment expected from you on certain dates would be smaller than usual. You can ask if you can pay more than what is required for a month to make up for what you cannot pay for a certain month. Both parties can agree on a payment schedule that works best for the borrower. After all, the goal of the lender is to collect the debt, and they’d be more than willing to negotiate rather than collect nothing.

• Contingency plan to avoid another financially stressful situations

Although we cannot fully predict what will happen in the future, it pays to have a mindset of readiness. After experiencing the anxiety and difficulty of having to apply for a loan just to cover all your business expenses, you have to be honest with yourself and evaluate if there is growth in the industry you have chosen. Review your goals from when you first started your business and come up with a plan in case your projected income falls short.

Bills are a constant for a business owner. Even if you downsize your team, you will still have to pay for your suppliers. You also need to consider how the swift rise in the cost of living in Singapore is affecting everyone. Come up with a plan now so you can also adjust your personal expenditure if needed.

• The factors that lead to your financial distress

These could be situations and unforeseen circumstances such as the quarantines and restrictions during the pandemic, or an emergency like your kitchen going up in flames or leaking pipes that need to be fixed. It could also be because of bad habits like personal overspending and lifestyle inflation leading to maxed-out credit cards. Whatever the reasons are, be honest with yourself. 

• Resources you have that you may not be utilizing

If you are in the service industry and have a few employees, you might need to evaluate the role that each one of them plays in your business operations. While it is not good to fire someone immediately, you can think of productivity measures you can implement while keeping in mind the welfare of your employees. 

Resources can also take the form of cheaper alternatives to the supplies you regularly buy for your business. While you might have established a good working relationship with your suppliers, no one will take it against you if you explore more economic alternatives. Just keep in mind that you also have to maintain the quality of your service and products to keep loyal customers. 

Competition is always cutthroat in the world of business, and consumers look for a business that can satisfy their needs at affordable prices. While you would want to maintain the quality of your products and services, you also need to make sure that you profit, and vice versa.  

Conclusion: Running a business is a 24/7 job and a big responsibility that not everyone can endure. 

Contrary to popular belief, running a business is not all glitz and glam. It’s a 24/7 business, and things can go bad. Aside from the usual problems like low sales and out-of-pocket expenses, there are those beyond your control. 

One is inflation. Consumers tighten their purse strings and could result in business losses. Another are worldwide events such as the COVID19 pandemic and the restrictions that came with it, as well as 

And sometimes, one needs to borrow money to open a business or keep it afloat. 

However, while a loan can help in the short term, a long-term solution is necessary if one wants to continue being an entrepreneur. 

To weather the storms that your business will encounter. you have to find creative ways of engaging with customers and fostering relationships. Build brand loyalty and focus on creating meaningful products and services that will prioritize the consumer’s wants and needs.