5 Reasons To Become a Small Business Loan – Most small business owners worry about getting loans. After all, we go into business to shadow our dreams and earn money, not accumulate debt. While this is true, loans are necessary for most of the 29 million small businesses in the United States.
Unlike large companies and Silicon Valley startups, small businesses don’t have the luxury of issuing bonds, issuing public stocks, or attracting venture capital. But most small companies can quickly be approved for a business loan or line of credit.
The word debt can have negative implications, but a business loan can consider “good debt” if it helps your business grow.
Unlike an individual credit card or car loan, which are debts that decrease value, a business loan is designed to increase the borrower’s value. Below are 5 reasons why you could use your loan to grow your business.
5 Reasons To Become a Small Business Loan
1. To Expand your Site or Open a New One
If your small business functions from a physical location, such as a store or office, at some point, you will want to expand or move to new facilities to grow and attract more business.
The same can say for an online business – your website could have done an excellent job attracting new customers. Still, rather or later, you will have to add more features, upgrade servers, or open multiple URLs to keep your business going.
Expanding your existing website or location or opening a new one costs money, often more than your business can afford. A small business loan could be the best way to finance expansion. The best lenders will transfer your funds to you within 1-2 business days of approval. As long as your new digs lead you to increase your income by more than the cost of paying the loan – a business loan makes sense.
2. To Build Credit for Future Loans
Your credit can affect the terms of your business loan, as many small business owners find out the first time they speak to a moneylender. If you have decent personal credit, lenders will be willing to offer you favorable terms for your business loan. If your credit is poor, you could treat your new business like a blank slate.
Taking out a business loan or business credit card offers you the opportunity to build business credit. Even if you only take out a loan of $ 1,000 (the minimum amount provided by most lenders), each payment you make on-time helps build your credit and strengthens your case for a better loan the next time.
When taking out a business loan, ask your lender if the lender reports to the various credit bureaus and what information is included in the reports. The major credit bureaus – Experian, Equifax, and TransUnion – collect data on companies. But unlike personal credit, data collection practices are not consistent.
Other good habits to build business credit include:
- Apply to the IRS for a tax identification number or employer identification number (EIN)
- Opening a business bank account
- Establishment of a business address and telephone number.
3. To Finance Equipment
A common purpose of business loans is to finance the purchase of fixed assets, property, or equipment used to make income. Equipment loans vary from general business loans in that they are made by a lender or an equipment finance company and are specifically designed to purchase expensive equipment.
An equipment loan lets you spread the cost of the acquisition over several months or years. The equipment is placed as collateral, so the lender can repossess the equipment if you default.
According to the Equipment Finance and Leasing Association, buying generally makes more financial sense than hire if you plan to use the gear for at least three actions. Still, it may be too much money to invest on your own without a loan.
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Equipment loans are offered for things like:
- Commercial printers
- Computer servers
- Manufacturing equipment
- Specialized machinery
- Kitchenware or kitchen equipment
4. To Finance a New Inventory
Inventory refers to the products of your business and the raw materials that go into making the products. Because the list is different from equipment, it has a particular type of financing called inventory financing.
This can take the form of an inventory loan or an inventory line of credit. Inventory loans are suitable for making a one-time acquisition of a large amount of inventory. A line of credit offers a suppleness to make regular, spontaneous inventory purchases.
Inventory loans are an excellent option for small businesses that have high and low seasons. Using a loan to meet immediate inventory needs helps free up cash for all of your predictable monthly business expenses, like paying rent and employees.
If you sell swimwear or ski gear, summer fruits, or Christmas treats, or if you operate a hospitality business, then you are probably familiar with the peaks and troughs of the season.
5. To Recruit New Talents
Many businesses start as one- or two-person operations, but if your business expands, it will eventually reach a point where you need help. Payroll can be both the most considerable and most necessary expenditure for small businesses.
Unless you function the type of business where you can attract medical students or pay employees fairly, you will need to have cash on hand from the moment your employees walk in the door. A business loan can assistance cover payroll until you make enough cash flow to pay employees with your earnings.
Payroll loans might also be suitable for businesses that employ seasonal labor. If you need extra help dealing with the Christmas or Black Friday fever, then a one-time loan might be the best answer for your small business.
A business loan is an expensive growth chance that, if used wisely, will pay for your small business in the long run. Whether you are borrowing money to expand to new facilities, hire new employees, or finance the acquisition of new equipment, there is a common thread: Your loan is an investment to help your business grow. Compare lenders and consider your loan reasons to find the best business loan for your small business.
Also Read: 12 Essential Applications for Your Business
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