When business owners don’t have contingency plans in place for potential financial issues, they are more likely to take on a short-term business loans. These sorts of loans have extremely high interest rates (60 to 80%). Many business owners get these loans to cover basic bills such as electricity and rent.
As small business owners, we tend to only concentrate on the here and now: how sales went that day and what’s on the horizon for tomorrow. This shortsightedness can spell trouble when it comes to a dry spell in sales or an unforeseen circumstance in which instant cash is needed.
The truth is it’s easier to secure a loan or a line of credit when you don’t need one rather than wait until the situation is dire.
If your business is doing well – you have accounts receivable, industry growth is strong and you have good credit – now is the time to consider a loan or a line of credit. Save the funds as a contingency plan in case something does go wrong or you experience a slow month and need the extra cash to cover operating expenses and payroll.
For most businesses, there will be plenty of options for loans when business is good and cash flow is strong. However, choices dwindle and can be extremely expensive if you wait to consider loan options until you’re desperate and in need of a lifesaver loan.