As a new business owner, funds are limited, and business loans help to cover various financial lapses. These loans must be spent wisely and optimized for business success. The ultimate goal of a business loan is to improve your business revenue and profitability. Before applying for a business loan, ask yourself, “Will this loan make my business more profitable?” The answer to that question should guide you as to whether you should take the loan or not.
Unfortunately, a lot of people obtain business loans for silly reasons and make terrible business investments with the loans. Small business loans should be used judiciously and not for trivial purposes. This article will show you the worst business investments that you can make using a loan.
Using a business loan to beautify your office
A business loan should be used for the core of your business operations and not for trivial things like beautifying or adding decorative ornaments to your office. An office remodeling is different from an office beautification exercise. An office remodeling can help you create space for new workers and equipment while managing your office space judiciously and increasing overall productivity. Office beautification serves only for aesthetics and does almost nothing to improve profitability.
Using small business loans to move to a posh location
There is absolutely no reason for you to use a business loan to move to a posh-looking, classy location except if you deal in luxury goods and the new location can help you attract more high-paying clients. If that isn’t the case, you risk wasting money on office rent, moving costs, mortgage, and other expenses without any correlating positive return. A new business should focus on reducing overhead costs and keeping them as minimal as possible.
Using a small business loan to service another loan
This is one of the worst business mistakes that you can make. A business loan should never be used to service another loan. Suppose you are taking out a loan to service out a previous loan. In that case, you aren’t considering the interest rates of the current loan along with other loan costs that will leave you more indebted than you were. The solution to debt is not more debt.
Investing a business loan on a failing business
Investing in a failing business is like using a band-aid to patch a sinking ship. It is ineffective. The business will most likely still fail, and you’ll also have the added business loan debt to pay off. Remedying a failing business is more about changing business strategies and finding more paying clients than borrowing more money.
Investing is risky business ventures that aren’t thoroughly vetted
The percentage of new businesses that succeed is very low. And that holds true for businesses that have been well thought out with solid business plans. Now imagine how a risky business venture will fare. Taking a business loan for a risky business isn’t a wise move. The business will most likely fail, and you’ll still have to pay the money.
Investing in ventures that you are passionate about but don’t have the business skills to run
Passion is good, but passion won’t make a business successful. A lot of passionate business owners ended up frustrated and left their businesses. Running a business involves much more than being passionate about the business. If you don’t have the right skills to run a business, don’t take a business loan to fund it.
Small business loans are investments that should yield more revenue and ultimately profit. You should never spend the loan on something trivial else; you risk being unable to repay it and losing your business and other important investments. Business loans should be spent on things that can increase your revenue like business expansion operations, office equipment, contract mobilization, etc.