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Business banking: Do you really need a loan?

There are always risks involved in borrowing money, so you should carefully analyze your need for it first.

Here are some points to consider when deciding whether you really need a loan:

  • Make sure it's capital you lack, not good cash-flow management.
  • Borrow in expectation of needs, not in desperation -- or you may have to accept expensive terms.
  • If your business is in transition to its next life stage, you probably do have a need for cash to foster growth.
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  • Have a specific purpose in mind, and be prepared to tell a lender exactly how the money will be used.
  • Gauge the health of your industry; it will make a difference in how favorably your loan proposal is viewed.
  • Consider establishing a good credit relationship with a banker by opening accounts or taking out small lines of credit, but don't get into debt without a plan for paying it back.
  • Make sure your business plan is up to date and the loan you seek is reflected in the plan. Lenders will want to review the plan.
BACK: Introduction to business banking NEXT: Common types of loans
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