Avoiding the Risks Involved with Obtaining
a Business Loan
Loans for Women: Avoiding the Risks Involved
with Obtaining a Business Loan
Every business, whether a start-up business
or a business that's been in existence for 30 years, needs financing from
time to time. Taking on a business loan can bring many positive things,
and can assist with items such as launching new products, expanding the
business, or purchasing inventory. However, there are also business loan
risks to consider. Before signing for a loan, or even applying for a loan,
consider the reasons why business loans or loans for women who are business
owners may not be ideal due to the business loan risk.
1. You're attempting to launch a new business,
product, service, or idea before you're truly ready.
Before deciding to by into the latest fad
concept, for example, spend time researching the market thoroughly and
decide whether the concept is a good match for your business experience
and interest to avoid a business loan risk. For example, many women think
that owning a restaurant is wonderful, only to find out that it's extremely
hard work. Study the pros and cons carefully before taking in financial
commitments in order to avoid a business loan risk.
2. Your credit cards have been maxed out.
It's not always a good idea to take a chance
at a business loan risk for women if you have no other sources of funding.
Lenders will immediately notice your financial situation as soon as they
pull your credit report. If you are already having difficulty paying your
existing financial obligations, don't become a business loan risk by gambling
with your business.
3. You're applying for a loan for an impulse
purchase.
Technology changes daily, so if you feel
that you need the latest technological update for your business, as an
example, write down the positive and negative impact of owning that piece
of equipment. Would it truly bring in additional income to the business,
or would it simply look better or be a "toy" to enjoy? Is the business
loan risk truly worth it? If the purchase doesn't immediately bring you
the idea that it will significantly increase your business income, then
this business loan risk is one not worth taking.
4. You saw an ad or received junk mail
offering you the lowest possible interest rate.
Just because you are able to obtain loans
for women, for example, at great interest rates, it doesn't mean that you
should take the loan. Loans are intended only for unavoidable or extremely
necessary purchases so that the business can thrive. A business loan risk
as obvious as this should most certainly be avoided. Rather, invest in
a paper shredder to destroy these types of offers, and only consider them
if you're truly in the market for a business loan for women.
5. You need to consolidate your debts but
know that you haven't yet learned to budget money properly, thus are knowingly
creating a business loan risk.
Debt consolidation will temporarily ease
the pressure of owing money with reduced monthly payments and often even
lower interest rates. However, you are at a very high business loan risk
if you have not yet addressed the underlying problem of spending too much
without being able to pay the money back in full as promised.
This fifth item brings about two very common
loans for women that business women often tend to choose due to ease and
high availability. Those two types of loans are credit lines and credit
cards.
The major difference between a credit line
and a credit card is the interest rate. Credit lines are a lower business
loan risk because they offer lower interest rates, and on the contrary,
credit cards tend to offer high interest rates. That's not to say, however,
that credit cards don't have their advantages as a source of a loan for
women in business, especially in regards to convenience. The money is available
immediately upon taking the card out of your wallet, and offers an easy
way of tracking expenditures with monthly invoices.
Credit cards can also offer other perks,
such as air miles, travel insurance, and warranty extensions, as well as
discounts on rental cars, hotels, and gas, and cash back on certain purchases.
Credit cards also offer a grace period, normally 25 days, to pay back purchases
on an interest-free basis. If you pay your bill each month, a credit card
can be an excellent source for a short-term loan for women, and can be
a business loan risk, yet the risk can be low if used wisely.
Most businesses want to avoid business
loan risk, but will also have at least one credit card for expenses and
even for emergency purchases. A line of credit may also be desirable, however,
especially for making larger business purchases and to draw out of during
periods of irregular cash flow. On both credit cards and lines of credit,
however, avoid business loan risk by paying off the credit in full, rather
than maxing out, only to later realize the mistake.
Rebecca Game is the founder of Digital
Women ®, an online community for women in business. A 30 year entrepreneur
and dedicated to helping other women find business loans.
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