Do you really need a loan? Can you do without it? How much do you really need? Almost everything has things in favour and things against it and loans are not the exception. It all boils down to taking advantage of a well-used loan or suffering from a bad administration, namely, asking for too much or asking for a loan when you could go without it.

It is relatively easy to get a loan. The difficult thing is to administrate it properly. There is always a tendency to feel “powerful” with money in your hands, and you start squandering it. So, establish your real needs and stick to them.

In most countries of Latin America, the interest rates are much higher, similar to those of credit cards, so the public in general think twice before taking a loan. In the US, where interest rates are much lower, it is therefore easier to pay back a loan… making it also easier to exceed your possibilities and get into trouble fast.

Points against a loan: Risk of not being able to repay, lack of monthly cash flow once you have used the loan money, chosing the wrong lender and getting into unnecessary disputes, among others.

Points in favor: The highest feature of a loan is when it can leverage your business. Next is the well-known “enjoy now, pay later”. Help towards startup of a new activity like salesmanship, for which you need a car. Getting rid of old, expensive debts with a more convenient financing, through mortgage loans or similar.

A bad experience with a loan will make you reluctant to future loans. A good initial experience might make you over confident with future loans. So, our sound advice here is never to act on impulse. Weigh everything carefully, find out the current rates and conditions and make sure you ask for the right sum.

Look out for the tendency at the moment of needing the loan. If the tendency is for the rates to decrease, then you might want to wait a little, until they reach their lowest point. Take note of everything you wish to ask the agent and take your notes with you, the classical, “What if I…” type of question.

When the loan is for starting a business, there are two possible situations. Either you come from an unsuccessful previous experience and you are changing trades or you are leaving a 9 to 5 job to start something on your own. In the first case, if your situation is rather desperate, you could say that the only solution is to get a home equity loan. Financially speaking, impulse is the mother of all disasters, so take it easy.

In the other case, when you are leaving a normal job to start your own business, consider the following: Take a short-term, easy-to-pay loan before leaving your job. Thus, you will be able to get the initial stuff you need, and probably launch a “trial” operation to check out the market, before you stop having a salary that will save your skin from the sharks.

Once you know how the trade responds, you can elaborate your business plan, knowing what you are talking about. That way, you will be able to get a much higher loan, with less risk for you as well as for the lender. They always like to feel they are “partners” in a good business.