Tips for Using a Business Loan Well
Nothing is as exciting as getting that congratulations message on successfully qualifying for a business loan. However, what I do with it is the other challenging part. If I spend it aimlessly, I will not have enough for the essentials and risk having the burden of unpaid debt with lower chances of getting future loans.
The first thing I’d want to do is ensure this loan does not mix with either my personal money or even money the business had before. I need every detail of how the money flows through the account to ensure I use it well. Having it in a different account makes it easier to monitor the cash flow. I should also demand that only relevant executives have access to the funds for accountability.
The next thing is fostering a clear plan on how to use the business loan. A budget is the best plan in this case. It should be very detailed, leaving no room for irrelevant spending. This budget will differentiate from any other spending plan by not including miscellaneous allowance. I want to account for every coin as much as it is within my power, and miscellaneous allowance could make this more challenging. Drawing this budget should involve all my business’s departments, with finance driving every decision made. This will ensure overall consideration, thus fostering healthy company growth from the aid.
Although I will try my best to benefit every department with the loan, I also need to start with the most urgent and the one that will lead to quicker returns. Remember, a useful business loan should pay itself back. This means money to pay back the lender should come from the investment returns the loan made. Inventory is probably the best place to channel most of the money. This will have a different meaning for different businesses as some do not work with actual stock as their profit generation points. However, if my company deals with concrete products such as clothes or stationery, I should have most of the business loan channeled into topping up our products.
Another money-generating department I will want to allocate a significant amount to will be the marketing department. This could be even more if my business is service-oriented as my income sources are in how many people I attract to hire our services. For a product-centered business, marketing will mean more people finding out about the products. Since marketing appears differently from an intention, I will sit with the marketing department to ensure we cover all critical bases. For example, online marketing is a huge income generator today. Therefore, if we do not have a quality website, I’d better make sure we get one as soon as possible. Other marketing strategies that might need urgent funding could include product samples and education marketing.
With a detailed budget and prioritizing important departments, I can have the peace of mind that the business loan effectively operates at all times. Hence, the next thing is the process of paying back the loan without hurting the business. It is not enough to have the intention to pay on time if we do not come up with an actionable way of doing so. The best way to channel back the loan is through an automated process. This leaves no room for intermediary stops that could halt or delay the time scheduled for repaying the loan. For example, we could ensure that a section of the profits made is automatically channeled into paying back the account. This way, we are sure that every payment is a contribution to the loan payment.
The biggest mistake I could make with a business loan is using it without a plan. Although it appears like free money, we have to pay it back soon. This means I do not have the luxury of not knowing where any dollar goes. Therefore, accountability is vital.