You just formed your LLC and now it’s time to figure out what to do next. Here’s what you know: You need to grow and expand before you reach capacity because a business that operates at capacity has a tough time meeting the needs of their customers in a way that makes the customer feel special and appreciated. You also know that you aren’t at capacity yet which means that before you can truly afford to expand, you need more business.
These scenarios are conflicting and every business asks these questions at some point in their growth and many answer the questions in one way: By contacting a bank and getting a loan. You’ve heard some of the experts and read the publications and found yourself confused about what to do. On one hand your LLC needs money but on the other hand, debt is only positive if your business grows as a result. Here are a few facts to consider.
Debt is Cheap Right Now- That’s Good
If there are any positives to a slow economy, this is one of them. The Federal Reserve has set interest rates so cheap right now that going in to debt is a bargain. Historically speaking, interest rates are normally many times higher than what they are now and because of that, now is a great time to contact your lending institution. Not only that, we’re in a buyers market for debt. Contact numerous lending institutions and find the best rate with the best terms.
Throw Cheap Money at a Struggling Business- That’s Bad
Money is cheap right now so that struggling business that is close to bankruptcy might just be saved with a healthy dose of cheap cash, right? Wrong. Although there’s a chance that your business, currently on life support, may be helped with more cash, businesses often fail for much deeper reasons than lack of funds. Maybe you formed your LLC with a flawed business model. Maybe you’re in an area with too much competition or where the market isn’t interested in your offerings.
Regardless of the reasons, throwing cash at a failing business may only serve to put you deeper in to debt. Don’t use the lure of rock bottom interest rates to finance your struggling business without making some big changes to the model. Look for growth as a result of other changes before considering a loan.
Debt may be cheap but it’s still dangerous. A business that has cash on their balance sheet instead of debt is a healthy business but debt can add much needed leverage to your business when used correctly. Analyze the risk/reward of it and know exactly what the money will be used for but if you’re going to borrow, now is a great time.