Should I Start My Business With A Loan?Reading Time: 2 minutes
The idea behind starting a business is to make money, or isn’t it?
Many people make the mistake of seeking a loan when they want to start a new business. This could seem the easier way to go about raising funds for your new idea, but it’s may also be one of the easiest ways to kill your business from the very start.
Today the team at Kiakia will work you through a few reasons why you shouldn’t apply for a loan if you are starting a new business venture, stick to the end, and you would find something that new to help your business journey.
#REASON 1: NEW VENTURE
As a new business owner or a prospective one, it is important to realize that your business is still in the first stage of growth. What this means is that there is a high chance that you are going to be making loads of changes as you adapt to trying to figure out what works for your firm and your clients, making these changes may result in costly mistakes, and making mistakes at the expense of a loan in addition to interest payments can become detrimental to your business especially at such an early stage.
#REASON 2: UNCERTAINTIES
There are so many business uncertainties that even businesses that have been in existence for a longer time still find it difficult to thrive. As a new business, you should take time to adjust to the business climate within your industry, find ways to deal with uncertainties, create, review, study and understand your business model and build a strong structure that can be relied on during hard times before considering a loan.
#REASON 3: UNDUE PRESSURE
Taking loans put your business under immediate pressure to make money and increase profits. As you would want to make enough money to pay back the loan and any interests that may be associated with it, while also making extra to cover overhead costs and keep the business afloat. This pressure may lead to rash decisions that could be detrimental to your business in the present and have a lasting effect over time. Now while pressure can be very good for business sometimes, pressure may also kill your business if you take on more pressure than is healthy for you and your business.
#REASON 4: LOSS OF PROFIT
As a startup, it is widely advised that for the first few months, profit from the business is invested back into the business to gain further traction. Taking loans can negate your business’s ability to do this at this stage, because even if you make more profits you may have to end up using a large portion of the profits to service your loan obligation, meaning that even if your business is doing well, there may be nothing to show for it for long periods.
Finally, if you must get a loan as a startup, you should consider carrying out some of the following actions first:
• Have a management team that is very experienced in the industry you are going into, ensure that their experience is matched with records that show exceptional results.
• Your records and business plan must be up to date and very feasible, showing current market trends, your unique selling point (USP), key performance indicators (KPIs) and all measurable metrics relevant to your business.
• There must be effective product/service demand and the product/service quality that meets the projected market demand for your business.