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Most businesses need to raise external capital from time to time. Here are six tips to consider before taking out a business loan.

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Purpose of the loan

Only borrow money when there is a clear purpose for the loan and a plan to use the money to grow your business. This could be to finance a purchase, invest in new premises or hire someone. Borrowing money without a clear purpose means that your business will incur unnecessary costs.

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Loan amount and repayment period

How much you borrow and the repayment period you choose will affect the cost. Borrow only as much money as you need and choose the repayment period that suits you and your business best. Shorter repayment periods mean higher repayments but lower costs. 

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Look at the total cost

It is easy to focus on the interest rate when taking out a business loan, but there are many other aspects that affect the cost of the loan. Origination fees, arrangement fees and administration fees are all things that can have a big impact on the total cost. It is also important to check whether the interest rate presented is annual or monthly. Make sure you know the total cost before you take out the loan so that you don't get a price shock afterwards.

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Which repayment rate is right for your business

There are different arrangements for repaying a loan and it is important to look at your company's revenue flow to choose the most suitable option. For example, if your business has a high proportion of daily sales through card transactions, repaying in smaller amounts on a daily or weekly basis may be suitable as it does not affect cash flow too much. If you are paid by invoice instead, larger monthly installments may be preferable.

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Possibility of early repayment

Needs can change over time, which is why it is important to consider the possibility of repaying the loan early. With an open-end loan, you can choose to repay the loan early if you no longer need it. This way you can reduce the cost of the loan.

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Do your research

Review your options before taking out a business loan. Compare different lenders to see which one can give you the best deal for your business. It's also a good idea to see what other customers think of a lender by reading reviews on sites such as Trustpilot.

As an entrepreneur, keeping track of your company's finances is essential. Stable and well-managed finances ensure that your company can meet its financial commitments, that there is capital available for investment and that it is better able to deal with unforeseen challenges. Here are five tips that can help you when it comes to your business finances. 

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Keep track of all inputs and outputs

A first step in keeping track of your business finances is to understand your income and expenditure. This means keeping a close eye on all financial transactions, such as sales revenue, costs of goods and services, salaries, and other operating expenses. By using digital tools such as an automated accounting system, you can follow these flows more easily and thus quickly identify and address any discrepancies. These systems sometimes also offer analytical insights that help you identify patterns and potential problem areas that could negatively affect your cash flow, and therefore your company's finances.

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Build up a financial buffer

A strong buffer to cope with unforeseen events is important for both individuals and businesses. For smaller businesses, where financial room for maneuver is often more limited and where large fluctuations in the flow of payments are common, it can be the difference between survival and going out of business. A buffer should be large enough to cover your company's operational costs for at least 2-3 months. To build up a stable buffer, you can set aside a percentage of your monthly income, cut back on unnecessary expenses, or restructure your existing debts to reduce monthly costs. 

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Optimizing cash flow

Good liquidity and freed-up capital allow your business to make the best use of its financial resources and avoid periods of high financial stress. One way to achieve this is to try to optimize cash flow and try to get paid by customers as close as possible to when you need to pay your suppliers. By negotiating payment terms with suppliers, you can synchronize payments with your incoming payments. You can give customers discounts for early payments to encourage them to pay faster. 

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Planning for seasonality

Virtually all businesses have some form of seasonal variation in their business cycles. Understanding and planning for these is essential to staying on top of your business finances. During the off-season, you can review costs, plan for the upcoming peak season and make purchases well in advance to get a better price. This way, you can more easily allocate resources during the peak season to ensure you can meet customer expectations. A flexible budget that can be adapted to seasonal needs is key to managing these fluctuations, and external financing can help your business smooth out the peaks and troughs to ensure a more even cash flow throughout the year. 

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Use technical aids

Today, there are a number of technical tools that can make life easier for you as an entrepreneur. It can be anything from automated accounting where all transactions are automatically recorded, to tools that facilitate work with leads, marketing or analysis. The past year has also seen rapid developments in AI, which has led to increased opportunities for entrepreneurs. Through the integration of AI and machine learning tools, you can more easily forecast your company's finances for the future and receive customized recommendations based on your company's unique data.

As a new entrepreneur, you are on an exciting journey and you face a number of challenges and lessons. It goes without saying that there will be mistakes along the way, but don't fear it. Mistakes are part of the process and if you learn from them for the future, they will only lead to development. Because continuous learning, flexibility and willingness to adapt are keys to becoming a better entrepreneur. That said, it is of course better to avoid certain mistakes from the start. That's why we've compiled some of the most common mistakes new entrepreneurs make and give you advice on how to avoid falling into the same pitfalls.

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Insufficient understanding of the market

Overconfidence in how well you know your market is a mistake many new entrepreneurs make. An easy way to get around this is to do a proper market research to get a clear picture of the market, your competitors and what your customers need. Don't underestimate the importance of doing solid groundwork as it will help you in many strategic choices you will need to make, such as product development and marketing.

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Poor control of the economy

There is a lot to keep track of in the beginning and for many, finance is not something they are familiar with or have done before. After all, the vast majority of entrepreneurs start up for reasons other than wanting to deal with the financial side of business. Many new entrepreneurs therefore make the mistake of not familiarizing themselves with the financial side from the start. Not getting to grips with your finances from the start can lead to budgeting mistakes, poor cash flow control and a lack of understanding of basic accounting principles. Instead, learning the basics of business finance or hiring someone to manage your business finances can save you from future problems and ensure your business runs as smoothly as possible.

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Not differentiating enough

A common mistake among start-ups is not differentiating themselves sufficiently from competitors. In a competitive market, creating a unique value proposition is crucial to differentiate and stand out from the crowd. This can be done by offering a unique product or service, creating a distinct brand identity or offering outstanding customer service. Not differentiating yourself makes it difficult to capture market share as an established business, but even more so as a start-up. Study your competitors' offerings and try to identify niches and unmet needs in the market in order to differentiate yourself successfully. By positioning your business in a unique way, you can attract and retain customers who are looking for something that only your business can offer.

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Not taking on board feedback

Feedback, whether from customers, employees or industry peers, is incredibly valuable for business development and improvement. However, it can be difficult to take on board criticism, especially if you are passionate about your business and work, and acting on it requires both openness and humility. Many new entrepreneurs therefore make the mistake of either not taking on board criticism or not actively seeking it, which can lead to missed opportunities to improve your offering, yourself as an entrepreneur or your customers' experience. But taking feedback and using it constructively can be one of the easiest ways to grow and develop. By acting on feedback, you can make necessary adjustments to your business strategy, improve your product or service, and ultimately strengthen your brand reputation and customer loyalty.

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Trying to do everything yourself

Many people who become entrepreneurs are driven by a desire to do things themselves and in the beginning it can be difficult to let go of things. Many new entrepreneurs therefore make the mistake of trying to manage all aspects of the business on their own. This may be due to a desire to save money, a lack of trust in others or a feeling that no one else can achieve the same standard. But trying to do everything yourself can lead to burnout, reduced productivity and even a decline in the quality of work. Learning when you should actually ask for help or bring in expertise is not a sign of weakness, but an essential skill for becoming a successful entrepreneur and something that can ultimately save you both time and money. This is because you can free up time for yourself and focus on the areas that you do best.

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Putting off getting to grips with the administrative side

F-tax, preliminary tax, employer contributions, VAT accounting, input VAT, output VAT, liability insurance, financial year, licenses. The list of concepts that you may need to familiarize yourself with as an entrepreneur is long. It's easy to want to put it off and take it as it comes, but your journey will be easier if you familiarize yourself with what you need for your business from the start. This way, you can avoid unnecessary mistakes and dates you need to keep track of and avoid spending time correcting things. If you feel that it's too much to do on your own, you can always enlist the help of a bookkeeper, accountant and lawyer, for example.

In a rapidly changing world, sustainable growth is crucial to the long-term viability of your business. Developing an effective growth strategy that will last in the long run requires ambition as well as strategic planning and implementation. In this article, we will go through some of the key components of designing a long-term and sustainable growth strategy for your business. This includes getting a sense of the current situation, setting clear goals, understanding your customers, driving innovation, investing in your people, having a strong financial foundation, effective marketing, and continuously evaluating and adjusting your strategy.

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Get an overview of the current situation

Before you start planning for the future, you need to make sure you know where you stand. Every successful growth strategy therefore starts with a thorough analysis of your company's current situation and position. Perform a SWOT analysis to identify your strengths, weaknesses, opportunities and threats. Analyze trends, your competitors, your customer base, and your internal resources to understand how your business differs from competitors, to identify potential opportunities and possible future risks. This way, you can identify the most profitable growth opportunities and avoid potential pitfalls.

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Set clear goals

The next step is to define goals for the company and its growth. This is best done using the SMART model, where goals should be specific, measurable, achievable, relevant and time-bound. The goals you set can be anything from increasing turnover or customer growth, to gaining market share, geographical expansion or launching new products. Your objectives should be aligned with the company's overall vision and ambitions. They should aim to provide a clear direction for the company's development while being flexible enough to adapt to changing market conditions.

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Focus on your customers

Understanding your customers and responding to their needs is central to long-term business success. Regularly collecting customer feedback and conducting market research to understand their preferences, behaviors and problems is therefore a natural part of any growth strategy. Once you have a better understanding of your customers, you can customize your products and services based on insights, thereby setting yourself up for higher customer satisfaction and loyalty. This may involve tailoring your offerings, improving customer service or developing new solutions that meet customers' specific needs.

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Embracing development

History is full of companies that once stood at the top of their category before being overtaken because they failed to keep up with the times. You're never better than your last performance is a common saying that is very much applicable to life as an entrepreneur. For your business to stay relevant, it needs to keep up with the times and the easiest way to do that is to encourage a culture of innovation in your business. This will lay the groundwork for openness to new ideas, technologies and business models. It also makes it easier to adapt quickly to market changes and customer behavior, which is key to sustainable growth. Your growth strategy can therefore usefully include investing in development, encouraging creative thinking among employees, and monitoring technological advances and industry trends.

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Invest in your employees

If you have employees in your business, they are your company's most important asset and ensuring their satisfaction and development is crucial for your business to grow. Your growth strategy should therefore include investing in their training and development, as well as offering career opportunities and benefits that encourage long-term commitment and loyalty. On the one hand, to foster innovation and development in the company, and on the other hand, to create an environment that encourages engagement, collaboration and increases your employees' satisfaction and motivation. Strong teams contribute to your company's culture and brand, which in turn attracts talent and improves your relationship with customers.

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Planning the economy

Finance is a central part of entrepreneurship and its role in a growth strategy is no exception. A solid financial plan is fundamental to managing growth because it doesn't matter how good your ideas are if you don't have the finances to manage them. It is therefore important to include budgeting, cash flow forecasting and strategic allocation of financial resources in your growth strategy. Be realistic in your financial expectations, prepare for different economic outcomes and ensure that there is enough financial leeway to deal with unexpected challenges or that you are able to jump on investment opportunities if they arise.

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Set a strategy for your brand

If finances are central to managing growth, your brand development is central to making it happen at all. In marketing, long- and short-term efforts are usually split, with long-term efforts focused on building and strengthening the brand. A strong brand is crucial to differentiate yourself from competitors and build a loyal customer base. Therefore, include a plan for how your marketing will communicate your brand's values and benefits in the long term in your growth strategy. Your brand is an intangible asset and strengthening it will not only boost your company's valuation, it will also allow you to increase the premium on your goods or services.

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Analyze and follow up

Predicting the future is almost impossible, so be prepared to revise your growth strategy. Analyse and monitor customer feedback, marketing and the external environment on an ongoing basis to make adjustments to your strategy. Flexibility and the ability to adjust plans quickly are crucial to your growth and long-term success. Measuring progress towards your goals and being open to change will ensure that you can maintain your relevance and competitiveness to succeed in your growth journey.

As an entrepreneur, there are many reasons why you might need external financing. Perhaps you have the chance for a larger premises that would increase your turnover. Would you be able to serve more guests with a larger outdoor seating area or do you want to buy a large warehouse for Christmas shopping? Borrowing can be a wise business decision. Here are some good questions to ask yourself before you decide.

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What is the best way to use a loan?

As a business owner, you often know best where your money can do the most good. Perhaps another hairdressing chair would make a big difference to your profitability? Or would a new restaurant oven increase your efficiency? The most important thing is that the loan is used wisely, opens up new sales opportunities and that you have thought through the risks before you borrow. Borrow only for exactly what you need. Don't borrow to solve an acute crisis.

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Will the loan pay off?

A profitable loan provides leverage through increased sales. The only way to find out is to calculate possible additional sales and costs. How many more lunches do I need to sell to make the new outdoor dining area worthwhile? How many additional sales does the new website need to generate?

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What will it cost?

The cost of the loan will vary depending on the solution you choose. Be sure to include all the loan fees. For example, for bank loans, these can include interest, arrangement fees and invoice fees. The time you spend writing the loan application, business plan and administration is also a cost.

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Will I be able to pay back?

Never take out a loan without doing a thorough analysis so that you feel confident that you can pay it back. Calculate what the repayment means for your cash flow. Also consider what it means if the investment does not produce the expected effect.

In cooperation with Toborrow.

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Running and growing a business requires not only hard work, but also sufficient capital. For many entrepreneurs, access to capital can be a crucial factor for growth and success, something that we at Toborrow have seen in many of our borrowers over the years. Let's explore the power of business loans and how it can be a catalyst to push your business forward.

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Expansion and growth

One of the most obvious ways to use business loans is for expansion. Whether it's opening new branches, expanding product lines, or investing in marketing, a business loan can provide the initial capital needed to take your business to the next level.

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Technical upgrade

In today's fast-paced business world, it is crucial to keep up to date with the latest technology. A business loan can be used to invest in new technologies and systems that can streamline operations, improve productivity and remain competitive in the market.

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Stocks and raw materials

For businesses in manufacturing or retail, inventory can be a significant expense item. By using business loans to finance inventory purchases or the purchase of raw materials, companies can ensure they have sufficient resources to meet demand and maximize their revenue.

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Recruiting talent

The success of a company depends to a large extent on its people. Recruiting and retaining talent is crucial for growth. By using business loans to invest in recruiting and training staff, companies can build a strong and skilled workforce that can drive growth.

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Survival and bankruptcy

In times of economic uncertainty or crisis, access to capital can be the difference between survival and bankruptcy for many businesses. Having access to business loans can give companies the necessary financial flexibility to weather difficult times and recover stronger than ever.

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A powerful tool with the right approach

Business loans are a powerful tool that can be used to push your business forward by providing the necessary capital injection for growth and development. But it is important to remember that business loans also come with responsibilities and risks. Before taking out a loan, it is important to carefully evaluate your needs, make a realistic business plan and ensure that you have a sustainable loan repayment strategy in place. With the right strategy and use, business loans can be a valuable resource to take your business to new heights. Learn more about how Toborrow can support your business growth through business loans or other financing.

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For more information on how Toborrow can help your business, visit our website.