Considering taking out a loan? Or know someone who is but not really should if you are them should? Here are some key steps to analyze before you start signing your life away:
- Assess your finances – Start with your net worth and accurately assess whether it can cover your operations whether it’d be personal or business-wise. Do you have money in other accounts or savings accounts? If not, this may be a good indicator that you may need some funding.
- Family and friends – Before you apply for funding from an accredited lender, consider whether close friends or family may be willing to lend to you. This can often lead to much more appealing terms than what a typical financial institution would offer, but it doesn’t come with its cons. It can (more often than what you might think) lead to relational problems between the parties. Still, you’d want to formalize any of these agreements before accepting any funds.
- Liquidate Assets – One of the most overlooked aspects of freeing up capital, using your own assets might be the best way of doing so. It’s amazing how much stuff of real value may be accumulated in your house, so use that as a way to fund your accounts.
- Re-evaluate your financial choices – It’s beneficial to track your spending and expenses. Lay these out in a balance sheet/income statement and improve on some unnecessary spending categories. Implementing a savings plan based on these changes can often free up some capital and prevent you from having to use a lender.
Once you have evaluated your financial position, consider the aforementioned options and you’ll be able to more accurately assess whether you need to seek a loan or not. If it’s not necessary, it may be a wiser financial decision to rely on the resources you have around you. If that’s not the case, it may be a good idea for a loan.