The Franchise Forum

Expert financial advice, content, and strategies for your franchise business

When NOT to take out a business loan for your franchise

There are many situations in which taking out a business loan can be an excellent strategy to help you grow your franchise in a realistic, manageable way. However, there are equally as many situations in which taking out a business loan is extremely inadvisable.

Here are a few situations in which you should not take out a business loan:

You want to launch a new business, but haven’t done your research.

You need to be absolutely sure your business has some staying power before you officially take out your loan. This means doing market research and finding out whether the concept you have is actually a good one. The last thing you want is to be financially committed for years to an idea that never was going to get off the ground to begin with.

You have maxed out your credit lines.

If you have already blown through all your available credit, it’s probably a bad idea to take on additional debt. Even if lenders do let you take out a loan, they’ll likely want you to secure the loan with some of your business’s assets, meaning you stand to lose quite a bit if you are unable to pay.

You see an interest rate that seems too good to be true.

There’s an old saying, “if it sounds like it’s too good to be true, it almost definitely is.” Be very careful about lenders advertising interest rates that are outrageously low. Additionally, just because you have access to low interest rates doesn’t mean you should take out the loan. While interest rates can be a factor in your decision, you need to make sure you’re ready to take on the commitment as well.

You are trying to make an impulse purchase.

Just because there’s some hip new technology that could potentially revolutionize your business doesn’t mean it’s a smart purchase. If the purchase doesn’t lead to more revenue, you’ll be left paying back the loan without any additional cash to make up for your losses. Shop smartly!

You are trying to move debts around in an unorganized manner.

Debt consolidation can be the right move to take for some businesses, but if you have deeper issues with financial management it likely won’t help you in the long run.

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