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Five Reasons To Use A Small Business Loan

Mentioning that you’re considering a small business loan is sure to get you an earful of differing opinions. Many people frown upon the notion of putting yourself in debt for your business, and it isn’t the right decision for everyone.

Knowing when your company might benefit from a small business loan can be tricky, but there are scenarios where it could provide your company the spark it needs to continue to grow. If you’re considering a small business loan but don’t know exactly how they can be useful, these are five common reasons people seek out a working capital loan.

    1. Relocation / Expansion

Your business has been buzzing, your current space is feeling just a bit more restrictive than it used to and you’ve even had to bring some extra staff on hand to keep up with the boom in business. Seems like an inconvenience but this is good news, your business is ready to take its next step. Many small businesses outgrow their original location; it’s part of the process of building a successful company.

This is when a small business loan can help make ends meet, getting you and your business into the space it needs to continue to thrive. Whether you’re interested in opening a second location or moving your business altogether, the upfront cost can be a bit intimidating.

Before taking out a loan and jumping into your dream location, it’s essential to evaluate your projected revenue and whether or not you’ll be able to turn a profit while making payments towards your loan. Upgrading or expanding your workspace is an exciting moment for you and your business. With the proper planning and preparation, relocation is a popular reason that business owners seek term loans.

    1. Inventory

Most businesses rely heavily on inventory sales to function properly. But there will be scenarios when the need for new inventory follows a dip in sales.

If your business is heading into its busy time of year after a slow offseason, or you’re just getting started and need to purchase your initial inventory, this could be another reason to consider a small business loan.

When considering inventory financing, it’s important to examine previous years’ sales to determine exactly how much capital can be beneficial.

    1. Equipment

If your inventory is the blood coursing through your business, then your equipment is the muscle helping it function efficiently. Every business needs some equipment to operate, and most of the time it isn’t cheap.

Equipment financing is often a necessary part of starting your business or upgrading some out of date appliances. Purchasing new equipment is like the adult equivalent of getting yourself a new toy, but it is even more beneficial than it appears on the surface. These new tools won’t just serve their intended purpose, but can also double as a form of collateral in future loaning situations.

While getting new equipment is exciting, separating your business needs and business wants part of being a responsible owner. While it’d be nice to have a new refrigerator in your company’s break room, that’s not precisely what equipment funding is meant to be used for.

    1. Staffing

Depending on the type of business you run, keeping the proper staff will have a direct impact on the performance of your business. If a specific department of your business is overwhelmed and needs additional support, or you are merely handling too many things on your own and need some extra hands, you might need to look into a staffing loan.

Likewise, if you are coming out of your company’s offseason, and don’t necessarily have the capital at your disposal to pay your incoming staff and remain financially stable, payroll funding can help right the ship while your business gets back into the swing of things.

As has been the case with each reason on this list, this type of loan also requires meticulous planning. Overstaffing yourself could cause a major headache down the road and force you to make some difficult business decisions you otherwise wouldn’t have had to make.

  1. Build Credit

This is kind of the cherry on top if you happen to be in need of any of the previous items on this list. Taking out a loan of decent size, like one you’d need to relocate for example, and paying it back ahead of schedule can do wonders for your business’ credit score.

This is helpful because now you will be seen as a trusted borrower that lenders will want to work with. Another perk of paying off your loan responsibly is the potential of lower interest rates on future business loans. Businesses looking to improve their credit score will sometimes take out a loan they know they can pay back somewhat leisurely, just to help build their credit.

Small business funding is a great tool, but like most things in life, taking advantage of a good thing can lead to malicious results. Many business owners fail to prepare correctly and end up in a bad position with their lender, which is why they get a bad reputation. Used appropriately, however, small business loans can elevate your business’ overall health by helping it acquire new assets, keeping it staffed and finding it a new home if necessary.

Small business loans, no matter what the situation, are considered a risk. The question is, is the reward worth the risk? So when considering a capital advance like this, you should ask yourself that same question. If the answer to that question is yes, and you’ve done the appropriate amount of research and planning, don’t be afraid to pull the trigger with confidence.

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