5 Smart Reasons to Get a Small Business Loan

The majority of small business owners are concerned about obtaining financing. After all, we go into business to pursue our passions while also making money, not to accumulate debt.

While this is true, most of the 29 million small companies in the United States require financing.

Small firms, unlike large corporations and Silicon Valley startups, do not have the luxury of issuing bonds, issuing public stock, or attracting venture funding.

Most small enterprises, on the other hand, may readily obtain a business loan or line of credit.

Although the term “debt” has a negative connotation, a business loan can be deemed “positive debt” if it aids in the growth of your company.

Five Good Reasons Why You Should Get A Small Business Loan

Unlike a personal credit card or auto loan, which are debts used to purchase items that depreciate in value, a small. business loan is intended to grow the borrower’s worth.

Here are five reasons why you should use your loan to expand your company.

1) To open a new location or expand an existing one


If your small business is based in a physical place, such as a store or office, you’ll need to expand or relocate at some time in order to expand and attract more customers.

The same can be true for an online business: your website may have done a terrific job of drawing new clients, but to keep your business running, you’ll need to add more features, upgrade servers, or launch several URLs at some point.

Expansion of an existing location or website, as well as the creation of a new one, takes money, which your company may not be able to pay.

A small business loan could be the most cost-effective option to expand. After you’ve been approved, the finest lenders will send your funds to you within 1-2 business days.

A company loan makes sense as long as your new digs result in a rise in income that exceeds the cost of repaying the loan.

2) To establish credit in preparation for future loans

As many small business owners discover the first time they speak with a lender, your personal credit can effect the conditions of your business loan.

Lenders will be prepared to provide you advantageous terms on your business loan if you have good personal credit. You might treat your new firm as a blank slate if your personal credit is bad.

Reasons to take out a small business loan

You can build business credit by taking out a business loan or using a company credit card.

Even if you simply borrow $1,000 (the bare least most lenders will offer), every payment you make on time helps to develop your credit and strengthen your case for a larger loan in the future.

Ask your lender if they report to the various credit bureaus and what information is included in the reports when you take out a business loan. Experian, Equifax, and TransUnion, the three largest credit bureaus, collect data about businesses.

Data gathering procedures, unlike personal credit, are not standardized.
Other options for establishing business credit include:

  • Request a tax identification number or an employer identification number from the IRS (EIN)
  • Getting a company bank account is a big step.
  • Establishing a business address as well as a phone number

3) To provide funding for equipment

The purchase of fixed assets, such as property or equipment that generates income, is a common application of business financing.

Equipment loans are distinct from other types of business loans in that they are made by a lender or equipment finance firm and are intended to be used to purchase expensive machinery.

You can extend the expense of an equipment purchase across several months or years with an equipment loan.

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The equipment has been designated as collateral, which means the lender has the right to reclaim it if you default.

According to the Equipment Finance and Leasing Association, buying rather than leasing makes more financial sense if you plan to use the equipment for at least three years, but it may be too much money to invest on your own without a loan.

Commercial printers, computer servers, manufacturing equipment, and specialist machinery are all eligible for equipment loans.

4) To fund the purchase of fresh inventory

Inventory refers to your company’s products as well as the raw materials used to create them.

Because inventory differs from equipment, it requires its own sort of financing, which is known as inventory finance.

This can be in the form of an inventory loan or a line of credit for inventory. Inventory loans are useful for buying a significant volume of inventory all at once.

A line of credit gives you the freedom to buy inventory on an as-needed basis.
Inventory loans are an excellent alternative for small firms with fluctuating seasons.

Taking out a loan to cover immediate inventory demands frees up cash for all of your monthly business expenses, such as rent and personnel salaries.

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If you sell swim or ski equipment, summer fruit or holiday goodies, or run a hospitality firm, you’re definitely aware of the seasonal peaks and troughs.

5) Recruiting new employees

Many businesses begin as one- or two-person enterprises, but as your company grows, you will eventually require assistance.

Payroll is both the most expensive and the most critical expense for small businesses.

You’ll need cash on hand from the time your employees come through the door unless you run the type of business that can attract interns or compensate staff reasonably.

A company loan can assist you pay your staff until you have enough cash flow to pay them from your own earnings.

Payroll loans may also be appropriate for businesses that use seasonal workers.

A one-time loan could be the ideal choice for your small business if you need extra support dealing with the Christmas or Black Friday rush.

Summary

A business loan is a costly growth opportunity that, if handled intelligently, will pay for itself in the long term.

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There are several options for borrowing money to expand into a new location, recruit new personnel, or finance the acquisition of new equipment.

There’s one common thread: your loan is an investment to help your business grow.

Compare lenders and consider the reasons for your loan to find the best business loan for your small business.

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