Unless your company has a balance sheet like the one Microsoft has, you are most likely to reach out for means to finance your business. Most of the big-cap corporations regularly require infusions to meet their financial obligations. In such cases, getting the right business funding model is vital, especially for small businesses. Let a wrong source infuse capital into your business, and you will end up losing a part of your company or find yourself stuck in the never-ending debt cycles, impairing your enterprise’s growth.
In hopes of getting the most out of the borrowed money, most small businesses reach out for commercial bank loans. Nevertheless, loans come from a variety of sources such as banks, credit unions, private investors, public funds, etc.
Depending on the route of its origination, seeking financial aid from third parties can be potentially dangerous. No one in their right state of mind will suggest you get a loan unless needed. While not every reason might be good for you to put your venture at risk, there are a few great reasons that make going into debt worth it. If you are all set to take a leap but lack the capital to do so, here is how a business loan guides you to meet your business’s financial goals.
1 – You Wish to Expand the Venue
Is your workplace not enough to accommodate the entire workforce? The bursting cubicles are a sign you need to expand your office. It is very likely for businesses once they have matured to outgrow their initial work sites. Besides affecting your labor pool, it also leaves an unpleasant impression of your company on the walk-in customers.
This is a good sign. You might not agree, but it is a sign that your venture has raised to new heights hence needs a place to complement its gains. But just because your business is booming and ready to widen its horizons does not mean you have money on hand to make it happen. In such a case, a term loan might help you in financing this big move. Be it expanding the site, or getting your business a new home, a loan can play a significant part in bringing this plan to reality.
However, evaluation of the change in revenue that might happen due to the expansion of the workspace is highly recommended. Make a checklist listing points such as can you cover the loan expenses while making a profit all the same? Make a revenue forecast and compare it with your current balance sheet to evaluate the impact of the loan on your business. Aside from that, make sure you put enough effort into assessing the location you desire to set up your new office in, see whether it is suitable for your target group.
2 – You Want to Build Credit for the Future
If you desire to finance your venture on a larger scale, especially in the upcoming times, going for small loans is a good start. Short-term loans are an incredible way to build business credit. Typically, amateur organizations have a hard time passing for long term loans because of almost no credit history, in which case the owner’s credit card score is taken into consideration. If you have not had a very good credit score, things might not work out for you. Hence, taking small, short-term loans can help build a credit score and remove all hindrances from the way of your business’s success in the future.
This scheme can also help you with setting a good impression of you as a businessman on the lenders and provide you with connections you could use to ask for larger loans. However, do not let this mere reason get you to seek loans you cannot afford. Because just one delayed repayment and you can forget a flawless business credit score. This ruins your way to not only big loans but also renders you almost ineligible for smaller loans at the time of need.
3 – Your Venture Needs Equipment
With the right equipment, your business can be well on its way to success. Buying equipment to improve your services is usually a low hanging fruit. Certain machinery is important for a business’s growth by allowing it to better up its services. However, for young ventures, it can be difficult to juggle with their finances and set aside a portion for buying the latest machinery. But, a loan can help with that. The great part? The equipment itself can serve as collateral for the debt. But before you reach out for the equipment loan, you need to be mindful about a few things such as ensuring that you keep the actual necessities and the nice-to-haves separate. Focus on your concerned area of services instead of investing in the extras.
4 – You want to buy More Inventory
Inventory is arguably the most important yet expensive asset of any business. Just like the equipment, you need to have your inventory replenished to keep up with the demands of your clientele. However, it can be a tedious task to keep up with the demands and maintain the quality of your services/products with a tight budget. Seasonal businesses suffer from this the most, for there come times when the inventory needs to be filled in large amounts at a time.
In all such circumstances, loans can be your savior. Loans become necessary to cope with situations like these and you can keep up with the repayment easily. Nevertheless, if you are still unsure about whether you should seek a loan or not, make a sales projection based on your past years’ sales around the times. Evaluate the debt cost and compare it to your total projected sales. This will help you decide whether going for an inventory loan is a good decision or not.
5 – You Have Found an Opportunity that Out-weighs the Potential Debt
Opportunities come and go, but sometimes, some of them are too good to pass up just because you cannot afford the investment it requires. In such instances, a loan can be of big help to your business. Consider the profit the opportunity is providing and compare it with the potential risk, if the former outweighs the latter then there should be nothing to stop you from moving forward with this plan.
However, being mindful regarding the assessment of the situation is important. Countless entrepreneurs have been possessed by guilt for the overlooking the underlying dangers of underestimating the true costs. Once you weigh your options and look at the pros and cons of the situation, you can make a decision based on the firm ground of facts and calculations instead of gut instinct.
6 – You Can Use More Fresh Talent
It is typical for young businesses to assign several duties tone group of employees. However, there is only so much a person can do, and getting multiple tasks done out of a certain group (who do not even specialize in all those fields, mind you) can take a toll on your business by affecting its services. If a small group is doing one too many things, things are bound to crack up at one point or another.
Risking your company’s image for such a petty thing is not worth it. Rather, invest some capital in bringing in fresh talent to your organization. This is one way to ensure the innovation and competitiveness of your enterprise. Seemingly a great move, it is not as easy as it sounds especially if your company is already low on budget. A clean connection between the hiring decision and the enterprise’s revenue is important, and you should not hesitate to seek a loan to add extra working hands to your work.
Besides, if you find yourself worn out by doing all the big things by yourself, it is a good sign. It indicates your business’s growth, and with growth comes more responsibilities. You can meet your goals with a small business loan that you can easily afford and hire freelancers and part-time employees.
The Final Word
Irrespective of the actual reason you sought a business loan for; the whole point of it is to not let financial shortage get in the way of your business’s growth. If all expenses are factored in, a business loan is sure to benefit your bottom line. A business loan is not something typically recommended, and you might consider letting it pass if the line between financing and the revenue is hazy. Until all things are clear, keep revisiting your decision about getting a loan to see if it is the best choice you have got.
However, in most cases, especially for young businesses, loans do more good than damage. Since it is not easy to find investors in the first years of small business’s existence to help you make the most of your talent, loans provide a haven to entrepreneurs. At the end of the day, it is you who can decide whether seeking a loan is worthwhile or not.