When should you finance? When should you not?

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From the video...

We’ve been talking about obtaining financing for your business, and I want to round out this series by talking about why you should think about financing and why you shouldn’t. It’s funny because I meet many, many business owners, and there are some folks that say ‘no, no, never going into debt,’ and then there are folks that every time they need a little cash, their first answer is, ‘let me see if I can get a loan.’ Both of those are extremes on the on the spectrum, obviously.

Financing can be great for investing in your business if you need things like new equipment or equipment upgrades that are going to improve the efficiency, capacity, and quality of your product.

If your business is growing or expanding and you’re relatively, you can’t be 100% but relatively confident it’s going to be successful, financing can be a great way not to tie up all your cash.

Businesses in the start-up phase may need financing. It will take some time to be profitable. So sometimes, a small business loan can help you get started if you don’t have the capital to fund it yourself.

Third, seasonal businesses often rely on financing, specifically a line of credit, as they’re through their off-season or, for example, I have a clothing retailer as a client, and he’s ordering right now almost a million dollars worth of spring inventory. And as that starts to come in in January and February, his line of credit is going to rise up and then as he sells it, it will drop down again. And this is a cycle that he goes through every year. So there are really great reasons to obtain financing for your business.

Some instances where you shouldn’t really be thinking about financing. If your business is losing money, it’s like pouring water into a bucket with a bunch of holes. It’s just going to go out; you’re not fixing the problem. In fact, you’re making the problem even worse because now you have this debt servicing to deal with. If this is the case, you really need to fix the systemic issues in your business. Are you not selling enough? Are you not pricing appropriately? Are, you know, are your costs too high? We’ll dive into all those in future videos. But I just wanted to make it clear when financing is a good idea and when it’s not a good idea, this is Judi Otton with GrowthCast and I’ll be back next time with a new Fiscal Fitness Tip of the Week.

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