If you’re on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
by Maurie Backman | Published on March 12, 2023
Image source: Getty Images
It's a decision you'll want to consider carefully.
Check out our pick for Best Cash Back Card of 2022
There may come a point when you need to borrow money to keep your small business going or help it improve. In 2020, the average small business loan was just over $71,000, according to AdvisorSmith, but you might need a lot more — or a lot less — funding depending on your specific circumstances.
The good news is that many banks and lending institutions offer loans to small businesses. But taking one out means signing up to pay interest and having to keep up with payments on an ongoing basis. So before you get a small business loan, ask yourself these important questions.
You may be looking at taking out a small business loan to expand your business or invest in new equipment. Before you borrow for that purpose, ask yourself if now's a good time to be borrowing money for these purposes. If your revenue hasn't exactly been steady, then you may want to hold off on expanding or taking on new expenses.
Maybe you have a specific piece of equipment you want to purchase for your business that will cost $14,000. You may be considering borrowing $15,000 or $20,000 so you have the leeway to fund extra purchases if needed. That logic makes sense, but you don't want to over-borrow if you don't have to.
These days, borrowing rates are up across the board on the heels of interest rate hikes by the Federal Reserve. That means you might spend more to borrow whether you take out a small business loan, a personal loan, or a home equity loan. So it may be best to keep your loan amount as low as possible.
You'll also need to make sure your loan payments are manageable given your business's revenue. Take a look at your banking records to see what sort of payments you can manage.
When you're borrowing money, your credit score matters. The higher it is, the more affordable it becomes to borrow. But when your credit is poor, the opposite can hold true.
What's more, your business might have its own credit score that can impact your ability to borrow money on its behalf. If your credit, or that of your business, isn't in great shape, then it could pay to hold off on taking out a loan.
Taking out a small business loan might seem like the most appropriate way to borrow when you need money for your venture. But you may also want to explore other options, too. If you have a lot of equity in your home, you may find that a home equity loan or line of credit (HELOC) is easier to qualify for, especially if your credit isn't the best. Both options let you borrow money for any purpose.
The decision to borrow for your small business is a big one. Think things through carefully before moving forward with a loan application.
If you're using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.
In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.
Read our free review
Maurie Backman writes about current events affecting small businesses for The Ascent and The Motley Fool.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 – 2023 The Ascent. All rights reserved.