For entrepreneurs, micro, small and even medium enterprises, one of the constant doubts to boost their growth is… do I need a loan? Usually one thinks of a loan for initial working capital, expanding inventory, doing some remodeling or any maneuver that points towards the growth of the business, but several points that cannot be ignored and that we present here are not always taken into consideration.
You have to define exactly what financing is needed: is your business really urgently leveraging or is the lack of liquidity simply overwhelming you? If you are not clear about the reason that leads you to think about acquiring a loan, you will not be able to properly plan its use.
What profit margin will I have?
If we are clear about what we need credit for, it is because we already identify in which activity / process of the company we are going to invest, but … that transaction what profit margin will it leave and in how long? This is vital to contrast it with the costs of credit, therefore: it projects how the investment would impact the income of the business, its costs and profits.
How much will it cost me?
When determining how much you are going to pay for that loan you are requesting, you cannot get carried away by the interest rate, but you should always check the Annual Effective Cost Rate (TCEA), which covers the interest rate, commissions and other additional costs you will pay for that loan. In this aspect it is vital that you also quote and compare at least three options of financial institutions so that you find one that is more in line with your reality.
The type of credit
Often, due to the numerous requirements that banks request to grant an SME loan (financial statements, formal accounting, thorough inventory registration) – and time – that alternative is not sought, but rather, faster financing mechanisms are chosen (and more expensive), such as credit cards and microcredits, which are very expensive and therefore would force you to have very high profit margins. Will it be possible?
How will I pay it?
What conditions am I able to accept? Many times, both in personal and business loans, one only thinks of disbursing the smallest possible installment, without taking into account that in the longer term, you will pay more in interest, therefore: you will invest 1,000 and pay 1,500, is it profitable for your business? And sometimes the opposite happens; It is thought to get out of debt as soon as possible and the shortest possible time for that credit is agreed, which leaves us at a very high quota. Can your company assume that payment without seriously compromising its liquidity? You have to take stock.
As you can see, acquiring a business credit is not a decision that can be taken lightly; There are many internal and external points to evaluate, give yourself the necessary time and make numbers.