Five Reasons Not to Take Out a Business loan

[Youngdee]

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. But there are also plenty of bad reasons to take out a loan. Here are five.​

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. Do your homework before you take on a serious financial commitment. Should You Personally Guarantee a Loan to Your Business?
2. Your credit cards and lines of credit are maxed out. 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. Read more about Cleaning Up Your Company’s Bad Credit Profile.
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.

I agree with you on some of the points listed out and I must start from the last one because it’s so intriguing and attracts attention. Most times when business owners get into debt due to mismanagement they think of taking a loan to get things settled, what’s the tendency you won’t end up in another debt through the loan you took.

 

[Setho]

I have seen a lot of lives and dreams being ruined by excessive debt and I can only advice that no matter how a business idea looks sleek and promising, it has a certain percentage of it being likely to fail so there is nothing special about starting big. You can always start small with your own savings, starting the business with a friend or a family member. If you must take a loan then it should either be a low interest loan paid over a large amount of time or no interest at all.

 

[Denuola]

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. Do your homework before you take on a serious financial commitment. Should You Personally Guarantee a Loan to Your Business?​

2. Your credit cards and lines of credit are maxed out. 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. Read more about Cleaning Up Your Company’s Bad Credit Profile.
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

 

[abubakar3141]

But there are plenty of poor reasons for taking out a loan as well.
...
Five are here.
Before you have thoroughly studied it, to start a new business concept. ...
Your payment cards and credit lines are maxed out. ...
You can't afford to make an impulse purchase. ...
You saw an ad or got an email about unsurpassed interest rates

 

[Bookwormlux1]

You are right, you really made a point of what you said. Getting a loan to start a new business is not a good idea and it's not advisable. I can not ever borrow money because of opportunities shared to me through email or I seen it online, because not every sites are legit.

Doing something of that nature would be a very big mistake. Any online earning opportunity that requires one to pay money is not good. The worst would be borrowing money to invest. It would be hard coping with such loss.

 

[Emma Aneni]

A detailed reasons you have outlined there. The most cogent reason for me is that, if you will not be able to pay back the loan then you shouldn't take it in the first place. Secondly, check what the interest rate is, if it's too high, I would advise you not to take it too.

 

[jimmann247]

Yes, those are a lot reason most people consolidate loan, if taking such loan with good reason this way, I will support taking a loan. Taking a loan to expand business becomes the current capacity can't serve your customers.

 

[Aniwhyte]

I wholeheartedly agree with all your above mentioned points, what you stated are facts that cannot be erased. It isn't in anyway advisable to take a loan to start up a business, the after effect doesn't always end well I would rather borrow money from family and close relations than take up a loan to start up a business.

 

[Rashid]

Yes i agree with you that we shouldn't take loan for business blindly. But if you are serious and have dedication to do business , plus should have experience by that business once you go throgh then you will decide in better way. But don't take loan as well as start business before thinking about nature of business.

 

[Lyrrex]

You have made very good points and I agree with every one of them. I do not believe in taking loan for start ups and using loans to pay off debts. Loans can sink a business, so, it is better to avoid them as much as possible.

 

[Peppul]

Well it depends on the individual running the business, if you are confident that taking the loan will expand your business well you can go ahead but it's not a good idea to start up a business with a loan, because so many things can go wrong and you taking a loan might put you in some tough spot. Am not a fans of taking for either for business development or personal reasons, because I have seen how loan officer deals with people they give out loans to, how they spoil their image, disgraced some publicly, arrested some because they can't pay back their loans and that alone is part of the reasons why I don't apply or advice anyone to take up loans. There is no guarantee that the loan you taking up for your business will boost up your business for profit so even if you are going to make sure you have a good collateral for backup.

 

[Taimoor Jutt]

Yes totally agreed. We can do sone alternative of Debt, so Equity will be better option. If we go for new business where we dont know about basics of that business but start just observing people then Taking loan is suicidal. Because if you get loss then you have to cover that loss and plus repay the debt this will unbalance you.

 

[Diamond07]

Taking loans for startups is a huge risk. It's not advisable to take up loans to pay debts too. To raise funds for your business you can meet family or friends for support or take government grants

 

[Ridorz]

Doing something of that nature would be a very big mistake. Any online earning opportunity that requires one to pay money is not good. The worst would be borrowing money to invest. It would be hard coping with such loss.

Even if I have a money that I can use without getting loan, I can not take the risk of invest on a any site I see online because most of sites that request for money to invest are scam, and I can not believe any site. Therefore, by fall in that kind site is a act of fullishness.

 

[MarieArie]

If you’re a small business looking for a loan to help your company’s development and growth, your firm could be in trouble. Unlike invoice factoring, gaining approval from a bank for a small business loan is a difficult and lengthy process. There are a few major factors that can prevent you from gaining the small business funding you need.

 

[Ryeetar]

Reasons not to take out a business loan, firstly the business may fail due to lack of good management, or stiffness of the market. Secondly, increment on loan charges if you don't get to pay on the stipulated time, thirdly you won't be able to calculate your output if the input keeps rising and falling.

 

[Niftyyem]

Honestly it's a terrible idea. It is dangerous to Borrow loan to pay off another loan. Loan can sink up a business if it is not properly handled. So you're right it is better to avoid them as much as possible.

Yeah! Bad idea indeed but unfortunately, I have seen it done before and at the end of the whole thing, the business couldn't survive and the owner had to disappear because his debts were just too much and his creditors were on his neck.
If I had a say in the matter then, I would have suggested he sell off the business to pay back the loan he took out to start, then begin afresh after saving up.

 

[Tollytee]

• To launch a new business idea before you have thoroughly researched it. ...
• Your credit cards and lines of credit are maxed out. ...
• To make an impulse buy you can't afford. ...
• You saw an advertisement or received an email about unbeatable interest rates.

 

[Bookwormlux1]

Even if I have a money that I can use without getting loan, I can not take the risk of invest on a any site I see online because most of sites that request for money to invest are scam, and I can not believe any site. Therefore, by fall in that kind site is a act of fullishness.

Better that you are already aware, so many people have not come to terms with this fact. They tend to agree with any Ponzi schemes or business things that have got suspicious contents and modus operandi.

 

[Briangsam]

These points are very valid and insightful, very detailed. But I think many people are so scared of loans, thinking it is so bad an attempt at moving a business forward. I don't think it is that bad though; provided the interest rate is at a single digit.
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These points are very valid and insightful, very detailed. But I think many people are so scared of loans, thinking it is so bad an attempt at moving a business forward. I don't think it is that bad though; provided the interest rate is at a single digit.