4 Golden rules when borrowing for a business loan

4 Golden rules when borrowing for a business loan

Finance & Accounting

GlobalLinker Staff

GlobalLinker Staff

203 week ago — 4 min read

In an optimistic world, all of us would have had enough money to fulfil our needs (both real and dreamy), but then it would have been like a movie, a happy one :)


So, to make our lives fulfilling and our business goals a success, we all end up borrowing, especially when planning to achieve those business goals and never-ending targets.


Here are some quick tips which will ensure you take a calculated risk and ensure you don't end up in a long-term debt-cycle.


1. Borrow only as much you need (Planned cost) + (6 months predictive operation costs)

When it comes to borrowing, follow what the elders have been saying all along – don't stretch beyond needs. Yes, that's right! As a budding entrepreneur, we all need a springboard; sometimes, it's provided through our family and friends, sometimes through an angel (investor). For others, there is always a business loan option


It's always good to have a plan in place before you take the loan; not all the arrangements are accurate, so one should keep at least 6 months' average operational expenditure in mind if things do not go as per plan. 


2. Make sure you pay the EMIs on time

The idea of running a business is to be profitable, so the monthly profits the loan brings in should cover your monthly EMIs and add more returns for you to save, plan, and invest. The more you default on your monthly EMIs, the more you lose the Bank's trust. So, plan, act accordingly and make sure you have a contingency.


3. Don't borrow to invest

Unless it is a long-term investment which will give you a long term benefit, it wouldn't be advisable to borrow as you will not gain anything out of it. 


For example, as an SME, if you plan to invest in a go-down (property) or a factory that will provide you with a long-term appreciation and a source of income, the borrowing would gain long-term benefits. Still, if you plan to invest in purchasing real estate properties to reap the benefits of appreciation, it wouldn't make sense as now a day you get only 4-5% returns, which is predicted to go further down due to the troubled times.


4.  Find the right business loan provider

Different banks have different processes and endless paperwork; some take ages to finally deploy as per your need while some refuse after a long background check. The borrowing would be of no value once you have lost your opportunity to fulfill a particular order or market share in that region. In such cases, it's crucial to understand who could keep your interests first. 


Whether you are looking to expand your business or want to meet your working capital needs, HSBC also offers similar products which may be explored, click here to know more. If you are looking to adhere to these golden rules and find the right partner for success, we recommend you check out what they have to offer. 


Image source: shutterstock.com

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