A number of small businesses find it difficult to access funding to make them more profitable. Debt and business loan can be expensive but that doesn’t mean there are no good reasons to get a small business loan when necessary.
If you own a business, there are numerous valid reasons to boost your finances with a business loan. Below are five reasons why a small business loan can be worth the risk;
1. Expand your business
When customers demand increase, supply must also increase to meet their needs. Meeting customer expectation means expanding storage facilities, purchasing machineries, establishing new locations or expanding existing facilities.
This thought can be intimidating, and as a small business owner with limited funding, scaling up can be challenging.
So, acquiring a business loan can help you expand more quickly and grow to meet market demand.
2. Purchase inventory
Keeping the right inventory levels can help your business meet customer demands without locking up capital.
But when inventory hits the reorder level and the business is not liquid enough, applying for a business loan could be a relief.
A business loan with favorable terms can help acquire inventory now, and pay the lenders at a later date. That will spare you the stress of having to cashout other business investments just to purchase stocks to meet demand.
3. Build your credit/financial history
It can be very stressful for new businesses with no proper financial history to access a loan funding. But as a small business owner, you start with a step.
So, you can try to purposely take small and short term loans just to build up your credit profile.Ensure to make repayments on these smaller loans at regular intervals.
This will build your business credit worthiness overtime, hence banks and future investors could bet on your business for larger loans.
This deliberate attempt could also help you to get acquainted with a particularly bank or get to understand how the loan system works.
4. Boost cash flow
Poor management of cash can collapse a small business in no time. A business with a healthy cash flow will be stable and can invest in production and expansion.
Therefore, when there is a temporal shortfall in cash, a business loan can prove handy for some quick fixes. This helps keep the business running without cash flow interruptions.
5. Purchase equipment for business
A business needs machineries and equipment to be efficient and productive. However, these are fixed assets and do not produce revenue by themselves.
Therefore, as a small business owner running on a tight budget, you wouldn’t want to lock up cash in fixed assets. Applying for a business loan is the best alternative.
This way, the loan amount could be spread over the estimated lifetime of the fixed asset and you will pay it bit by bit. This saves you the cash in hand to run your business.
A small business loan can be handy to help you patch up your finances, but it isn’t free money. If you thought of it that way, then you have to think twice before applying.
It has a payback period plus interest, so always weigh the benefit of loan against the costs (loan amount plus interest to be paid), and find out whether it is worth the risk or not.
Failure to payback a loan can put you out of business, and you wouldn’t want that to happen. Therefore, small businesses must ensure that they meet loan application criteria before applying.
Once the loan is approved, it must be used for the purpose it was acquired for.