It is a dilemma encountered by every startup entrepreneur: your great business idea is now up and running but expansion is hindered because of lack of funding. You risk stunting the growth of your business because you don’t have the funds to grow the business to its full potential.
This is the time you should consider taking a loan to fund its potential. According to Navin I.Uttamchandani, President and Chief Operating Officer for Esquire Financing, “Generally there are two kinds of funding that any business will have: First is their own capital and the second is a loan. “ Typically, a small business will consider borrowing when the growth that they want is only achievable beyond what they can inject on their own.
Below are three things you should think about if you decide to take a loan for your business:
1) Why do you need the loan?
You need to take an honest look at your business and ask yourself why you need the loan. Navin says: “Some of them will need it because they want to put up another branch; they want to put up another store or they want to buy more inventory. “ Other entrepreneurs will need a loan to fund this week's payroll to tide them by.
“My piece of advice for people taking out their first loan is to really know what they are going to use it for; making sure it is going to develop the business. It should increase some kind of capacity or fulfill some sort of working capital requirement rather than buying a new office or other luxuries, “ says Rajan A. Uttamchandani, Chief Executive Officer of Esquire Financing.
2) Can you afford it?
When you finally decide that you need a loan, take a hard look at your books to assess if your cash flow can afford to pay for the monthly interest and principal amount. Rajan says, “A good loan is invested in working capital to expand your business while bad loans are taken to pay off other loans or to refinance unnecessary items for your business.”
He advises startups to manage their cash flow by, “making sure you have enough cash flow to service your debts. It is always good to look at a debt to equity ratio.” Debt to equity ratio indicates what proportion of equity and debt the company is using to finance its assets according to Investopedia.
3) What you should expect
When a startup applies for a loan from Esquire Financing, Sandeep G. Chandiramani, Chief Finance Officer, says they interview each loan applicant personally and, “we look at the 5Cs of credit: we look at the character of the person, capacity, capitalization, condition, and collateral.” So knowing the ins and outs of your startup is a big plus. Don’t forget to do your homework.
Moreover, Esquire Financing also makes sure to advise loan applicants on how to make their business successful. Sandeep says, “For most of our clients, we always ask them about the margins of their business and we ensure that they have healthy margins.”
“We can do a comparative analysis and explain that maybe you can do this or do that better to grow your business and expand your operations. The knowledge that we have, having a diverse customer base, allows us to easily identify improvements for each of our clients,” adds Navin.
Are you ready to make your first business loan? To know more about the services offered by Esquire Financing, click here.