MENU

Business needs extra cash but there are plenty of bad reasons to take out a loan

by • August 18, 2019 • SME LoanComments (0)377

Every business needs extra cash from time to time, and there are plenty of good reasons to take on debt: to launch new products, expand your business, or purchase needed inventory. Even though every business needs extra cash, there are also plenty of bad reasons to take out a loan. Here are five.

By: Hitesh Khan/

1. To launch a new business idea before you have thoroughly researched it. Fads come and go; the goal is the find one that sticks. Before you decide to buy into the latest fad concept, spend some time doing market research and deciding whether or not the concept is a good match with your experience and interests. Many people think that owning a restaurant is glamorous but find out later that it is very hard work.

business needs extra cash

Image credit: Public Domain Pictures

Although every business needs extra cash, you have to do your homework before you take on a serious financial commitment.

Personal guarantee is an inherent part of obtaining small business loans but there are many ambiguities and misunderstandings that surround the topic of personal guarantees. A personal guarantee is an unsecured promise from an individual to make loan payments when a small business is not able to do so. “Unsecured” means it is a promise that is not backed up by a specific asset, such as real estate, in which case, the asset would be considered collateral.

A personal guarantee is an added assurance that you are serious about your business – and most importantly – serious about repaying the loan. One big reason why a personal guarantee is needed is because most lenders are bankers and are in the business of accepting deposits. They use those deposits to make small business and other loans, and, as a result, they are responsible for protecting the interests of their depositors.

Be mindful that while your small business may be a borrower, you are also a depositor. As such, you would be affected if an unscrupulous small business owner borrowed your company’s deposits and did not bother to repay them.

A personal guarantee is a psychological reminder to you of your company’s obligation to make timely payments and eventually repay the loan. If it fails, you are responsible. A personal guarantee shows your commitment to being a responsible business manager and repaying your business loan.

Every business needs extra cash and the financial affairs of a small business are commonly intertwined with the personal financial affairs of its owners, so it is logical and reasonable to ask you to promise to repay the loan, if your company cannot. A personal guarantee offers lenders the ability to follow the due process to recover the business loan from you personally.

2. Your credit cards and lines of credit are maxed out. Even though your business needs extra cash, if you have exhausted all other available credit, maybe taking on more debt is a bad idea. When lenders see that you are overextended, you will likely be required to secure the loan with assets. If you are having difficulty paying your existing financial obligations, you are entering risky territory by gambling with your facilities, inventory, equipment, or even worse, your own house.

3. To make an impulse buy you can’t afford. Perhaps there is a new technology or machinery you think would benefit your business, or maybe you want to remodel or upgrade your facilities. While all of these things may prove advantageous to your business, you won’t be able to reap the rewards if you have leveraged all of your assets and the extra profits you make go toward repaying the loan. If the idea doesn’t bring in extra revenue, you are still responsible for paying back the loan. If you used assets to secure the loan, you may end up without a business at all.

4. You saw an advertisement or received an email about unbeatable interest rates. As the old adage goes, if it sounds too good to be true, it probably is. And on the outside chance that it is true, just because you can get a great interest rate doesn’t mean you should.

5. You want to consolidate your debts but haven’t learned how to budget. Maybe your company is going through a tough time, or maybe you have mismanaged your company’s finances and are now looking to consolidate all of your debts. Debt consolidation may ease the pressure temporarily, but you need to address the underlying problem if you want your business to succeed.

How to Secure a Business Expansion Loan Quickly

If you are searching for a business expansion loan, the loan consultants at iCompareLoan can set you up on a path that can get you a it in a quick and seamless manner. Our loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. Find out money saving tips here.

Our Affordability Tools help you make better property buying decisions. iCompareLoan Calculators help you ascertain the fair value of a property and find properties below market value in Singapore.

If you are looking for a new home loan or to refinance, our Mortgage brokers can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all our services are free of charge. So it’s all worth it to secure a loan through us for your business expansion needs.

Contact us for advice on a new home loan.

Contact us for home loan or refinancing advice.

Pin It

Related Posts

Simple Share Buttons