BORROWING FOR SMALL BUSINESS

BORROWING FOR SMALL BUSINESS


Soon after setting up the business, two situations can arise.

In the first instant all the laboured and detailed working has suddenly gone awry, a few unforeseen and unplanned expenses or investments or cashflow problems creep up, reserves used up,  and the only option is to borrow.

The other situation is that the business is doing fine or better than projected. Either the customers are taking longer to pay, or we have to borrow to meet the new and unexpected opportunities which cannot be missed.

There may be a totally different sceneario even at the start for some. The business or the project would have been lined up, but the opportunity cannot be allowed to go by for want of funds, as the funds are either in shortage or not there at all!!! As we are very sure of the project, since every minute detail has been worked out, we resort to borrowing even to start the business.

Whatever be the case, we have decided to borrow.

Now for those who have got securities the first rational move is to go to the bankers. A banker is always uncomfortable with  a startup. Even if we offer securities, the bankers will still hesitate.

Then we start looking for other options. The private finance is usually quite expensive. After all, they are aware of the higher levels of risk they are taking, since, they only service the clients  who have been negated by the bankers.

The situation is worse when we have to borrow with out securities. The financiers' risk multiplies and he charges very high for the money lent by him.

In the anxiety to save the business, or project,  the order, or the commitment to the customer/s, we borrow at higher rates with the hope that the situation will improve in a short period.

More often than not,  it is opposite of what we plan and perceive. Since most of the start up owners are first generation entrepreneurs with some core strength on which their business is based and their financial wisdom is usually got at the second half of their career only. 

The bottom line is to avoid borrowal in the first place. Try to find the ways and means of turning around with out borrowals, even if takes you through hard decisions.  After all the road will get tougher with borrowals.
Seek advice from friends or seniors who have gone through a situations like this.  Their inputs could be valuable.

But when it seems no other option is available, but to borrow, borrow at as low cost as possible. The financiers are not going to be saints when they ask for their money back. When the market offers money at higher rates of interest, prefer not to borrow, and hold on. You will suddenly find that you were able to tide over the situation from your own resources, by manipulating your cash flow, or otherwise, and can carry on without the borrowed funds.