If you think that a loan could be a financing option for your welding garage, it is important to first analyze what such a short and long-term financing instrument entails, but also what concrete needs you would like to finance through it. I made my personal investigation and this is what I've got.
In general, loan products are affordable post-startup solutions. In the short term, there are loans or overdrafts for temporary/urgent needs, while for investments you have loans for the short, medium, long term. But the bank comes with conditions, it should not be seen as an investor, it will require a lot of transparency, reports, to meet financial and non-financial conditions. This terminology sounds really strange to me but I'll explain you right away.
Depending on the type of business plan and the needs of the welding garage, you can start with smaller, short-term loans for current needs, and as the business grows you can turn to banks for financing and more substantial investments, with long-term loans. If you want to buy equipment or expand production facilities, you should apply for investment loans.
I don't recommend using short-term loans to finance such endeavors, as the pressure on the company's liquidity may be too high. In other words, funding can make the difference between success and failure, which is why the type of funding must be chosen carefully. The golden rule, however, is to never borrow more than you can afford.
Questions to Answer Before Taking a Loan for Your Garage
Like any other financing tool, a loan comes with a number of advantages and disadvantages, which are good to evaluate before making a decision. Here are some helpful questions to get answers for:
How does it help your business? When you get a loan, your business will grow even more. It's not a good option to "get stuck" in installments if your business is in trouble, but you want to cover your debts or plan to buy a new car. If you apply for a loan to cover unplanned garage expenses, then you need to make sure that the deficit is temporary or seasonal.
How much will it cost you? In life and in business, nothing is free. And the money borrowed from the bank will cost you interest and commission and/or administration fees. If you are lucky, you get 10% per year, in addition to the initial amount you have to repay, but keep in mind that there may be significant differences from one lender to another, depending on the offer of loans for startups. Therefore, I recommend that you try several lenders, the effort may be worth it. The lender should be your partner at all times, not just when you plan to take out a loan. For example, at the cost level, it can help you by offering you accounts with minimal fees.
What type of loan to take? There are different types of loans:
- Short-term loans are also called working capital loans, the equivalent of consumer loans.
Advantages: they are relatively easier, ie fewer documents are required, but the borrowed amounts are also smaller. - Investment loans are medium-term loans that you can borrow to launch your welding garage. The available amounts are greater compared to short-term loans and the repayment process takes place with an online withdrawal of money from your bank account.
You can talk to your lender to refinance a loan that no longer helps you or find the right loan for your cash flow, business status, and estimated income.
How can you increase your chances of funding?
Most start-ups fail because they have difficulty managing cash flow. In other words, it is extremely important to know, constantly, about every dollar collected or spent. In addition, it is equally important to:
- Build a relationship with the lender.Don't wait until the last minute to go to the lender's office and apply for a loan. The history of the relationship with the lender is very important, the fact that the loan provider knows how your garage has evolved in recent years can make a difference. Also, carrying out current operations through the same lender brings not only benefits but also indirect benefits. The more the business works with a certain lender, the better the credit institution will offer financing conditions, knowing closely the risks of that business.
- Reinvest the profit of your welding garage.You can finance your large projects from the sums set aside in previous years. Reinvesting profits is not only a source of financing, it also proves to the bank that the company is not just a source of income for you, but you are willing to use the profits to further grow your business.
- Think strategically and in the long run.A lender will follow the medium and long-term strategy and look at how you manage your suppliers and customers.
The Risks of the Welding Garage Business
Your welding business looks perfect at the first sight but you should always assess all the risks that might appear over time, especially in unexpected situations. According to my experience, there are two types of risks:
Internal Risks
- risks related to supply and sales (contracts that could not be honored by suppliers, narrowing of the sales market, etc.);
- technological risks (impossibility to acquire modern welding technology due to problems mainly related to investment financing);
- the risks generated by the human factor (strikes, incompetence, etc.);
- information risks (impossibility to keep up with new market trends).
External risks
- political risks refer to changes that can radically change the economic environment in which the company mostly exports its products (country risk);
- the financial risks affect the results of the company following some changes that appear in the market conditions. These risks are beyond the control of the company. Hence the need to identify and measure short-term risks and, first of all, price risk and currency risk;
- the contractual risks refer to the non-fulfillment by the partner of the obligations that it has assumed through contracts.
This risk can occur either when a contract is no longer of interest to the partner (risk of non-performance), or when the partner is no longer able to comply with its contractual obligations (risk of insolvency).
Which risks you can’t handle? Is it financial? Great! Try to discover all the financial possibilities and cover your expenses within several days.