MONEY

3 Things Your Business Needs More Than a Loan

A little loan can only help, not hinder, a business as it grows. Or so you think. Here's what to consider before you dig deeper into debt.
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The only thing preventing you from taking your business to that next level is a loan, right?

Wrong.

Before you wallow over a loan rejection and get stuck in a rut--or pull out your credit card--consider:

1. A Talent Check
Burned too quickly through that startup cash and don't know how to pivot? Come up with your next move, quickly, but get buy-in from your team. Hardware engineers, software programmers and other employees are in hot demand in many markets--and they're not going to wait around through multiple iterations until one of your ideas sticks.

"What I'm seeing is extreme competition for engineering talent--basically if you can't prove your vision or model out quickly, your best people will leave and go elsewhere," warns Bill Lee, the serial entrepreneur and angel investor who has backed companies such as Tesla Motors and HootSuite. "If you make a mistake now, you can pretty much expect a lot of your talent will be leaving quickly."

2. Financial Counseling
One of the four principal reasons small businesses borrow money is to expand their venture. But taking on more debt isn't necessarily the right move for you right now.

"I think the counseling is almost more important than the lending," Maria Contreras-Sweet, the new head of the Small Business Administration, said last month in an interview with the Associated Press. While she agreed that getting access to capital is vital, Contreras-Sweet has found that some business owners fail to manage their cash well.

Her recommendation? Speak with a financial counselor--a trusted investor or a loan officer, for example--about your business's long-term goals. You might be surprised at how you can improve cash flow, without injecting any more money into the business.

3. Keeping Your Guiding Vision Flexible
Depending from whom you're trying to secure a loan, you may need to agree to certain conditions as outlined in, say, a financial contract or operating plan. Yet these agreements can tie your hands in the future when your business needs to be nimble, and they don't always work for all company types.

"Generally, the most successful startups--at least in the high-tech space that we've seen--are very much reactive," says Stephen Lake, the CEO and co-founder of Thalmic Labs, which plans to release its gesture-controlled Myo this fall after more than 30 iterations.

"So there's listening from customers and, ultimately, you're still probably headed in the same direction but it's more of a meandering based on information you get as you go," he adds. "Having an idea of where you want to go but being flexible is more important than being very rigid."

Last updated: Jul 22, 2014

NEIL PARMAR | Columnist

Neil Parmar writes about technology and startups. He's also a professor of journalism and resident storyteller at Jolt, a startup accelerator.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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