When you tell people you’re thinking about getting a small business loan, you’ll get a lot of different reactions. From general sceptics to cautionary tales, everyone will have something to say about what might go wrong if you apply for a loan to launch or develop your small business.
“Just because not every reason is a good one to get into debts for your business doesn’t mean there aren’t any brilliant ones,” says Shane Perry, a small business lender from maxfunding.com.au.
Is a small business loan worth it? If your business is in desperate need of money, this may sound like a stupid question, but some business people are wary of borrowing. Acquiring a small business loan carries some risk, but it’s well worth it since, when used correctly, it can be a catalyst for business success.
Here are more reasons why you shouldn’t hesitate on taking out a small business loan.
A Small Business Loan Improves Your Credit Score
A small business loan can help you build your credit rating, making you less of a risk for future financing—if you pay it back on time. Yet, in addition to being eligible for a broader range of business loans, a good credit rating also makes you qualified for significantly cheaper interest rates. Reduced monthly repayment costs and more affordable loans are two benefits of reduced interest rates.
A Small Business Loan Allows You To Buy Additional Inventory
If your clients are buying in large quantities, you’ll need to acquire enough inventory to satisfy =their needs. Small business loans allow you to procure a high volume of products and stock them to be ready for shipping as soon as clients place an order.
Although you must exercise caution not to overspend, if sales soar as a result of your offerings, the extra cash generated may more than cover the loan’s principal and interest.
Use A Small Business Loan To Grab A Profitable Business Opportunity That Offsets The Risk Of Debt
Specific opportunities are too excellent to pass up, at least in the eyes of those who see them. Perhaps you have a chance to buy products wholesale at a discount, or you discovered a great deal on a broader store location.
In these cases, calculating the opportunity’s return on the investment necessitates evaluating the cost of borrowing against the income you stand to produce from the given option.
If the anticipated return on investment overcomes the associated debt, go for it! However, use caution while doing your computations. It’s not rare for entrepreneurs to overestimate their revenues and underestimate their expenditures since they’re too excited about the project.
Therefore, when assessing the benefits and disadvantages, it’s frequently helpful to make a revenue prediction to ensure you’re making choices based on accurate statistics rather than gut sense.
You’re Not Selling Your Business’ Equity With Small Business Loans
Unlike equity investments, small business loans are nothing more than a line of credit that you take out to fund your business operations. When you finance your business using equity or have investors join, you’re giving them a portion of your business.
While this may not be a significant issue for several business owners, not everyone will want other shareholders to have a role in managing their business. In addition, there is no equity exchange when you take out a company loan; the lender is solely interested in being paid back with interest.
A Small Business Loan Spent On Marketing Delivers A ROI
If you want to draw clients, you have to promote your business. Small business loans can finance your marketing efforts. After all, it makes sense to secure funding to pay costs vital to success if you have a low or negative cash flow.
Moreover, suppose you spend the loan for well-planned promotional activities or marketing that brings in site traffic or in-store visits and generates sales. In that case, the loan produces a positive return on investment. However, remember that it’s essential to conduct market research to ensure you’ll get a return on your investment.
You Can Use A Small Business Loan To Bring In New Talents
You have to wear several hats in a startup or small business. However, you’ll eventually get to a point when performing the accounting, marketing, fundraising, and customer support may become too much for yourself – and your business.
Likewise, something will inevitably slip through the gaps if your limited staff is juggling too many responsibilities. Some businesses believe that by investing in their employees, they will be successful in the market.
If there is an apparent link between the hiring choice and an increase in income, this might be an excellent move. However, if having an additional pair of hands available helps you concentrate on the broader context, that alone may make the loan cost worthwhile.
Use A Small Business Loan To Cover Your Equipment Needs
In most cases, obtaining finance for equipment that enhances your company’s offerings is a no-brainer. However, it would be best to have specific machinery, information technology equipment, or other tools to manufacture your product or provide your service. Therefore, you want financing to cover the cost of such equipment.
When you take out a piece of equipment, be sure you’re sorting between actual needs and nice-to-haves in terms of your bottom line. For example, your staff would most likely appreciate a piece of in-office fitness equipment. However, that specific equipment may not be the ideal investment for your business—especially a startup or a small one.
Ready To Expand Your Physical Presence?—A Small Business Loan Can Help
It’s impossible to move about in your cubicles, and your new employee has had to end up setting a workspace in the kitchen counter. Perhaps you own a restaurant or a retail business; then you have more people coming in and going out than you can accommodate.
This is fantastic news! It most likely indicates that your business is thriving and that you are ready to grow. However, even if your business is poised for growth, you may not have the amount of working capital to make it a reality.
Moreover, adding a new site or relocating will need significant capital expenditures and a considerable shift in operational costs. In these instances, you may want a small business loan to fund your expansion or relocation.
Finishing Off With A Business-friendly Note
As long as the interest rates on small business loans aren’t excessive, they’re worth it—no doubt!. However, you must ensure that you spend small business loan borrowed funds sensibly and that you have a strategy in place to repay lenders.