Five Reasons to Obtain a Small Business Loan

While taking on debt can be a scary, many business owners benefit from small business loans. After all, the additional capital can help you seize opportunities as they arise, without compromising daily operations

This is a guest post from Jeffrey Bumbales, the Director of Marketing at Credibly. While taking on debt can be a scary, many business owners benefit from small business loans. After all, the additional capital can help you seize opportunities as they arise, without compromising daily operations. But with so many expenses and investments to support, many small business owners are unsure of when and why they should seek additional financing. Below, we highlight five ways in which your company could benefit from a small business loan:

Expanding Your Business

Growing a business isn’t easy: It takes a strategy, time, and proper capital investment. But because expenses often scale with revenue, many business owners have trouble effectively allocating resources between daily operations and growth initiatives.After all, insufficient cash reserves will make it impossible to pursue strategic growth initiatives like building a second unit of your store or hiring more employees, and abandoning daily operations is a surefire way to stunt cash flow.Small business loans can fuel your expansion by providing coverage for all of your growth costs (property, advertising, renovations, additional staff, etc.) without dipping into the working capital you need to maintain operations.

Managing Inventory

Inventory is one of the most difficult expenses for businesses to manage because of the significant investment incurred before you can start selling products to offset the costs. If your inventory isn’t large enough to keep up with demand, you’ll miss out on opportunities to sell your goods to customers and end up paying a high cost per unit. If your inventory is too large, your expenses could outweigh your revenue, causing you to lose the business. And this dilemma becomes even more difficult if you sell seasonal goods.Luckily, short-term loans, lines of credit, and cash advances can help you scale your inventory without depleting the money you need in order to maintain operations and sell more goods.

Cash Flow Management

It’s no secret: cash flow management is one of the biggest struggles for small businesses. But when the problem becomes too severe, you run the risk of not having enough available capital to support daily operations. Once your top line disappears, so does your business. That’s why so many business owners choose to take out a business loan to support cash flow. Sure, you could focus relentlessly on cutting all possible expenses. But as you put all of your energy into decreasing your bottom line, your revenue will continue to dwindle. At some point, it will catch up to you. Instead of downsizing, seek financing options that allow you to push on while profits are low. The goal should be to keep money coming into your business so that you can drive enough revenue to offset any losses.

Purchasing New Equipment

Equipment isn’t cheap. Whether you want to purchase new machinery to boost production or need to replace aging equipment, a business loan can help you spread the large, one-time investment cost over a long period of time.And while the idea of paying interest on an item that already gave you sticker shock sounds crazy, it’s definitely worthwhile. Because instead of depleting your cash flows, you’ll be able to relax as you pay off the equipment with the income it generates.Financing the purchase of new equipment makes sense if the equipment is crucial to your business operations, but if you only need a piece of equipment temporarily, or if it's equipment that will quickly depreciate in value, leasing the equipment may be a better option. You can learn more about the difference between equipment financing and equipment leasing here.

Improving Business Credit

Did you know that paying off financing in a timely manner can boost your credit profile? By borrowing and paying off your financing, you’re showing lenders that you are capable of taking on debt. You just need to make sure that you pay on time, and that the lender you choose reports your payments to the credit bureaus.If you plan on taking out a large expansion loan in the future, consider utilizing short-term financing to improve your credit profile while accomplishing a few extra initiatives. By the time you’re ready for the expansion project, you’ll have more of your goals accomplished and you should qualify for better rates and terms. With that said, no business should take on debt strictly to improve their credit. Look into investments that would be nice to have, should yield significant returns, and will not eat up your budget. If it seems like a good idea (after a cost-benefit analysis), then go for it.

About the Author

Jeffrey Bumbales is the Director of Marketing for Credibly, a leading Fintech lending platform that provides affordable, right-sized capital to small and medium-sized businesses. He’s also a foodie, adrenaline junkie, and puppy father. Connect with him on LinkedIn to talk shop!

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