Is your business ready for a business finance loan?

by Brett Isenberg , November 14 2017

Bootstrapping your business by funding growth from personal finances and early stage revenue is often seen as the ‘right’ way to grow your company.

And while there can be a real sense of achievement from knowing you built an empire off the smell of an oily rag, it often limits your ability to supercharge your growth, preventing you from taking advantage of business opportunities before your competitors do.

That’s why many savvy, small business entrepreneurs now understand that with a little modelling and careful budgeting, it is possible to combine a bootstrap mentality with a sensible amount of strategic financing. In fact, the right business loan at the right time, structured in the correct way, could allow you to get the best of both worlds, helping your business get where it needs to be faster.

So if you’ve been bootstrapping for some time, how do you know whether you’re ready to take on your first business finance loan?


Be honest about where your business is at


The first step is to evaluate where your business is at. Taking on debt to recover from business losses is not an ideal position to start from. Instead, your business should be generating solid revenue month on month, and operational and customer acquisition costs should be fully understood and under control. If you’re not there yet, this is the first sign you probably need to bootstrap for a little bit longer, to get into a position where the growth engine is humming nicely.

1. Build a plan

A business without a plan is a business without direction. So before you contemplate approaching potential lenders, you need to have a firm idea of exactly what you need a business loan for, and how this debt investment will translate into revenue and profit.

A great example of where businesses look to invest is in growing their top line revenues by bolstering sales efforts. If you have a solid handle on your acquisition costs from your bootstrapping days, then it is safe to assume this spend is under control. Putting a business loan towards acquiring new customers should, therefore, generate a predictable outcome with respect to additional revenue and profits, with minimal variability and risk.

While you’ll pay a slight premium to acquire future customers due to the interest that builds upon the money borrowed, chances are additional scale in your business through new customers could reduce operational costs elsewhere, netting off the costs of borrowing.

Having this plan will not only give you more confidence in your ability to manage a business loan but will also ensure you are on the front foot when getting quotes from potential lenders. And it’s worthwhile remembering a solid business case will ensure anyone financing your business can quickly evaluate the risk and payback period, both important factors when it comes to you negotiating a great rate.

2. Work out which business loan is right for you

If you’re a first-time business borrower don’t be embarrassed if you’re confused about what a business loan is, or how it’s preferable to financing your business through credit cards, a personal loan or an existing mortgage.

Typically speaking, a great small business loan works with your cash flow, not against, understanding the ebbs and flows of your business. And unlike drawing down on an existing mortgage, some business loans will not require you to secure the funds against a personal asset, which can relieve stress on a variety of fronts.

How do business lenders do this? Well, while there are many types of basic, unsecured business loans on the market, it’s also possible you have assets in your business that you never even realized could be used to help you secure a business loan. One example is invoice finance which uses your unpaid invoices as an asset to help you secure finance.

3. Choose your lender wisely

New technology players in the fintech space are also transforming the specialized online business lending marketplace.

Compared to a ‘one size fits all’ personal credit card or loan, these data-driven finance solutions can be a game changer for your business, speeding up the application process and generating tailored rates. Octet is one such lender pioneering this sort of approach. Octet offers innovative financing solutions that simplify business finance and allow you to pool your trade and invoice finance with your existing credit card limits for supplier payments.


In Conclusion


If you follow these four steps when considering if your business is ready for a business finance loan, then you’ll be well positioned to graduate from a bootstrapped business to a high growth venture. And given there’s no time like the present, why not get started today?

Interested in learning more about the various types of finance Octet provides? Get in touch with our team today.


Brett Isenberg

Brett brings extensive experience in business financing for startups, scaleups and enterprises.

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