I was talking to a young business person the other day, and we were going over their finances, personal, and business. Both of their finances were tightly weaved together. The business was run as a sole trader, and as such, the owner had some loans in just their name, and some loans in the company name. In addition, 1 of the company loans the owner had signed as a guarantor for, so in essence, as the owner of the company, they were responsible for all the business debt, in addition to their own bills and debts.
Their concerns were the fact they had started a big job refurbishing a block of flats, and it was good work to have, and would pay well. The job was to start at the end of January, and they should have the work completed by April, and be paid upon completion of the work.
Their main concern was paying payroll and buying materials, as they were very low on cash until they get paid on that job. Which again would not be until late April.
The inevitable question that arose was, if they could just get a loan they could get back on-track with things.
A loan is not the answer.
Why Not Just Another Loan?
A loan is not the answer as you cannot borrow your way out of debt. The company is experiencing cash flow issues, and borrowing more money, against future revenue is not the answer. Then the new loan payments come due, and you having borrowed, and in essence spent money you have yet to earn, will only find yourself in more of a situation struggling with the repayments and other bills.
The answer is to stop, regroup your finances, and take a serious look at the matters at hand.
If you cannot afford to repay the debts and bills you currently have, adding another one won’t help.
Contact your creditors or the lenders you owe, be it for loans, credit cards, HP, and discuss your situation with them. Can you have a payment holiday of 30 or 60 days to get back on-track? They may have some options or solutions for you.
Once you have the new contract in hand and complete it, and are paid, look at the financial picture again.
You are looking at what income/revenue you have coming in, and all your outgoings, but now under the perspective of a new beginning. Not constantly chasing the past bills and payments.
You begin a new start 60 days or so out.
If you are still struggling with the payments and bills, this is a sign you may very well be insolvent, and need to look at other and more strict options. Options that may require getting outside, professional advice.
But getting another loan, is like a plaster on a major cut, it will not stop the situation or heal matters.
Loans are a temporary solution to a longer term problem.
I’ll wait for the “what about a consolidation loan” questions:)