How Much Money Can You Borrow? – Here is a simple Guide
Photo by Quinton Coetzee on Unsplash
If you’re an established business and are focused on growth, you may be searching for a business loan to help you accomplish your goals. But before you apply for a loan, you’ll need to determine the best amount to ask for.
If you borrow too little, you may not accomplish your goals, and if you borrow too much it could be a financial burden.
So how do you establish the “correct” amount when seeking out loans for businesses?
Consider the Variables
The answer is simple and yet complicated. There is no right, “blanket” amount for a business loan that will work for every business owner. Meaning there’s no perfect equation that tells you how much to borrow; it’s all up to your unique business needs.
To determine the right amount, it’s helpful to consider a host of factors, including:
- What type of business it is
- Your business requirements
- How are you going to use the money
- What expenses you will incurr
So how do you make that kind of decision without years of experience crunching numbers and assessing risk?
Borrowing More than You Need
You may be tempted to borrow a large amount of cash; overshooting your expansion budget (or whatever business project you’re looking to fund with a loan). That way, even if expenses end up being higher than projected, you still have enough cash to cover it.
But keep in mind that with a higher loan, the associated fees may be higher, too. If you borrow more than you can afford to repay, you may find yourself in an endless cycle of debt.
When you take out a loan responsibly, and for the right amount, a loan is an incredible business asset that offers you opportunity, growth, and success. It shouldn’t be a financial burden.
Borrowing Less than You Need
At the same time, if you’re too risk-averse, you may end up borrowing less money than you need. With this scenario, you could find yourself short on cash while upgrading equipment or planning a location move, and unable to carry out your plan as you intended. And, consequently, you could be left repaying a loan that didn’t benefit you to the fullest extent.
As you can see, neither borrowing high nor borrowing low is a safe strategy; you need to borrow the right amount for your needs, no more or less.
How to Borrow the Right Amount
If you don’t know how much capital you need, then you may want to consider enlisting the help of finance professionals to determine a game plan.
And, what better finance professional than your very own lending partner? You likely already have a relationship with them (or intend to begin one), and they know the intimate details of loan finances.
Finding the Right Lending Partner for Your Needs
Successful small business owners must find the right lending solution for their needs by doing their homework. Often business owners contact lenders because they need a loan fast.
They know what they want to accomplish with the money, but most of the time they don’t have a clear idea of how much loan capital they really need to accomplish their objectives.
Hence, speak with as many lenders as you can and share the details of your business needs.
Only then you will have a clear idea of how much you can repay realistically without stressing your finances or stretching the limits of what your business model can accomplish.
If you’re interested in discussing your financing options, eMail Us today!
The information shared here is intended to be used for informational purposes only.
