When You Must Borrow, Borrow Smart
For many small business owners, there comes a time when they need additional capital to move forward with their business. If you find yourself in this position, take the time to do a thorough analysis before you sign any loan document. There are three steps you can take to help ensure that you choose a loan agreement that is right for you.
The most important thing you can do for yourself is to shop around. Larger banks and community banks will have different terms and interest rates. Some conditions of your loan will be negotiable; others may not be flexible. Compare at least three different institutions to get a good sense of the marketplace so you can make an informed decision. Also, be aware that locally-owned banks are often able to process loan applications more quickly since their decision-makers are local. If time is an issue for you, this might be something you’ll want to factor in.
Another thing to consider is your ability to repay. Take on only as much debt as you truly need and can realistically pay back in the future. This is a time to be very honest with yourself. While you might HOPE that your business will triple in the next 12 months, in truth, that’s typically not a very probable scenario, right? So, plan your loan based on modest expectations and save yourself the stress and instability of being stuck with loan payments you can’t handle.
And finally, make sure your loan is suitable for its purpose. In general, short term needs such as payroll and inventory purchases can be met with a line of credit. However, long term needs such as expanding your space or adding new equipment will generally be met with a term loan amortized over a longer period of time.
If you take your time and consider these factors, you’ll make the right borrowing decision and can grow your company without unnecessary financial stress.
Robin Roberts is the President of Pikes Peak National Bank. Pikes Peak National Bank is a family-owned community bank with approximately 40 employees located in El Paso County. Robin has been with the bank for 16 years. The bank’s small business focus works well with Robin’s efforts to encourage entrepreneurship and small business ownership in our region. To that end, Robin is a volunteer consultant at the Pikes Peak Small Business Development Center (SBDC) where she works with new and existing small business owners to help them navigate the commercial loan process. She is also the Chair of the SBDC’s Advisory Board. Additionally, Robin is a board member and volunteer with Junior Achievement of Southern Colorado. She serves on the boards of the Old Colorado City Foundation, the Fire Foundation of Colorado Springs and the Pikes Peak Community College Foundation. Finally, Robin is a proud veteran of the United States Army.