Growing a business is not a walk in the park, even with a partner. Those who have been running one long enough can attest to this. There will be days when everything seems in your favour, and times when they are not. There are times when you agree with one another, and times when you don’t. Then there are times when your business needs extra cash. For many entrepreneurs, that means turning to a licensed money lender for a loan.
If you run your business with a partner, you should not take out a loan for it casually. Here are a few things you and your partner should discuss before doing so.
1. How much do you need?
It is tempting to think you can’t have too much of a good thing, but that is not always the case with loans. You and your partner need to sit down and crunch the numbers. How much money does the business need? What specific areas of your business need funding? How will this cash injection help you grow? Do not just pluck a number out of thin air – be specific. Remember, a loan can affect your business for years, so you must borrow the correct amount.
2. What are the terms?
After agreeing on how much the loan will be, it’s time to shop around for the best money lender. And we mean really shop around. Do not just go for the first offer that comes your way. Look at interest rates, sure, repayment terms, and hidden fees. And if it applies to your situation, ask about prepayment penalties. Some lenders will penalize you for paying off your loan early, so it’s something you need to take note of.
3. What is your exit strategy?
Exit strategy means your loan repayment plan, not you leaving the business. For this one, you and your partner need to be on the same page. To avoid friction or falling out, discuss the things you’ll potentially disagree with one another early on. How much do you split your loan repayment contributions? What happens if one of you cannot make your share for one month? These are just a few questions you should ask regarding your exit strategy.
4. What are the risks?
What if sales do not pick up as you expected? What if an unforeseen expense eats into your profits? Play out these worst-case scenarios with your partner. It is not fun, but it is necessary. Things won’t always go your way after a loan, so it is better to be prepared than caught off guard.
5. How will you make decisions?
Determine how you and your partner will decide when it comes to loans. Will it always be a joint decision, or will one decide on behalf of the business? Neither setup is right nor wrong, but you need to agree on a system that works for both of you.
6. What are your long-term goals?
How does this loan fit into your overall business plan? Where do you envision yourselves in five or ten years? Tackle this with your partner, and make sure you agree that this loan should be a step toward your goal, not a detour.
Conclusion
There is no doubt that taking out a business loan is a significant step, whether you do it alone or with a partner. Still, there is no need to worry, especially when you have someone on your side to take on this journey.
Many business owners have been here before, and they usually do it with open, honest communication and careful preparation. This way, the loan becomes a springboard for your company’s growth
