If only we can see the future, we wouldn’t have to ask ourselves what-if questions for business. Then again, where’s the challenge in that, right? So, like all the young businessmen before you, you must at a certain point come to a crossroad and decide. And one of the key things you need to check is if taking out a loan for your business a wise decision. In light of the COVID-19 situation, where there’s more uncertainty than before, it seems having added cash is beneficial. Or is it?
Well, there are always risks in business. You should know that by now. Even the mother of the legendary Jeff Bezos, long hailed as the richest billionaire on the planet, advised the Amazon founder to keep his ‘sweet job on Wall Street’ and take care of his e-commerce business on weekends and nights. We all know now Jeff quit that job and concentrated on the business against his mother’s wishes.
And as risky as taking out a loan is, would it constitute the catalyst to grow your business? Or will it sink things down? Check out an expert’s take on what’s best for your business during the pandemic.
The Merits of a Loan
From face value alone, you might jump to the conclusion that a loan is worth it. And why not? Everybody’s struggling. Your business is struggling. So, a loan should be smart.
Take a breather though. In any language, a low-interest loan is the best possible loan you can get but it’s still borrowed money you need to pay up at some time in the near future. And that means you’re adding a burden to the business.
So, the answer to whether you should take out a loan is it depends. Before you decide, take time to assess your business right now. You can do that by answering the following questions:
- Do you need the funds to leverage a clear opportunity now?
- Will borrowing keep your business afloat?
- Is it for the short term or the long term?
- Are you risk-averse?
Take note that there are gainers and losers in today’s market. Food stores, grocery stores, and supermarkets are raking it as everyone needs the essentials. The same holds true for face mask manufacturers.Almost overnight, face masks became the planet’s most coveted commodity.
For these rising stars, extra funds would be the leverage they need to grow some more. For instance, as demands for face masks surge, manufacturers must make more. And that requires extra cash.
Moreover, businesses that needed to enable their staff to work remotely must purchase key equipment, from monitors to webcams. And for that, they need cash.
Know, however, that taking out a loan and not paying it can be detrimental to your business. Simply put, it can lower your credit rating. When banks do their credit risk analysis or assessment and you have a low credit rating, you might not be eligible for a loan when it matters most. Credit risk assessments are a useful tool. It’s part and parcel of every bank and lending institution’s system to know how much risk is accrued when a borrower defaults on payment.
Weighing Things Out
So, you will have to do your due diligence to decide which is best for your company. But there are clear signs that you should not take out a loan. Some of these are:
- If after your assessment, you know your business will survive the pandemic even without a loan.
- If you know very well, you can’t possibly pay the loan back.
- If you’re not really poised to take a risk.
A good way to see things clearly is to discuss things with your accountant. He should be in the best position to assist you and advise you. Even better, he can help you should you want to take out a loan. Also, he can give you the numbers to show you which lending institution is best to approach, a bank or a much-smaller fintech lender.
The thing is you need your accountant now more than ever. He is your man when things are in chaos. Why? That’s because he can translate these things into numbers.
Seeking Other Options
You’re not entirely out of options these days. A loan is not the only method that can help you. In fact, you can approach your bank or a lender you owe money to and seek to negotiate.
Ask your bank if they can:
- Register you to avail of a 6-month loan deferral scheme.
- Ask if you can avail of deferral for your mortgage payments (assuming you have one).
- Seek a reduction in your credit card fees and other interest rates.
- Seek to waive or reduce bank fees for a short-term (3 to 6 months).
Or you can be forthright. Ask them if they have other options for you so you can take some load off your back. Think about it. You gain more when you seek to discuss these things. And you should. After all, these are not normal times. Your courage should be rewarded soon.
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