It’s an adage as old as time: to make money, you have to spend money. And it’s true — especially in the business world. You have to invest in growth, like property, equipment and advertising.
Managing all of these costs, however, can be tricky. As a result, paying immediately for your business needs is difficult until your business actually earns.
But how can you invest and still keep money in the business for operational costs?
Applying for a loan may seem like a risky venture for business owners, especially for those who are just starting. But don’t think of it as “taking out debt.” Instead, think of these loans as boosters for your finances. A loan can help you finance changes in the business that guarantees high returns on your investment.
So when do you need a business loan?
Investing in an expansion opportunity for your business is one of the top reasons to get a loan. When your business is thriving, continuing to grow your business ensures that your profits don’t shrink or plateau.
Further business growth has many costs, such as new property, building renovations, increasing staff sizes and advertising. In most cases, it’s unlikely that you’ll have cash on hand to cover all of them — unless you use the funds set for your business’s operations.
Business loans cover the expenses of business expansion without consuming your operational funds, so you can continue to serve customers better while growing your business.
Improve Your Cash Flow
Cash flow is always a challenge for small businesses, and it can continue to bother you when dealing with customers who fail to pay for your services or when you have plenty of unsold inventories. These issues pose more problems when you factor in costs for utilities, mortgage, inventory or rent.
A short-term loan finances your regular operational costs, as well as keeps your business afloat when your profits are low. By keeping a consistent cash flow through your business, you can continue to bring in more customers while making up for other losses.
Buy New Equipment
Every business needs equipment to do the job, such as machinery or equipment (e.g. laptops for video editing) used by your customers. The downside of investing in equipment is the cost.
They are usually expensive plus they wear down and become outdated as time passes.
Also, unplanned expenses like replacements or repairs of broken equipment can compromise your budget. As much as you’d like to put the task off aside, running without that equipment isn’t always an option. Faulty or broken equipment can also increase your liability and discourage customers who need reliable services.
Business loans can help you manage the costs of your equipment, enabling you to do your job and still provide quality customer experiences. Loans can also keep your business up to date with new technology, which improves your operations and customer interactions.
Hire Fresh Talent
When working at a small business or a startup, owners wear a lot of hats. But there will come a time when doing everything in your business alone will take a toll on you. If your small team is doing many tasks, something will compromise your business model.
A business loan can finance your hiring of talent. This can be a great business move, especially if there’s a direct link between hiring good people and an increase in your revenue.
Improve Larger Loan Terms
If you’re planning on needing larger loans soon for upgraded equipment or business expansion, it’s best to apply for smaller loans first, especially if you haven’t built your credit yet.
The first business loan you take out will most likely have less-than-ideal terms since you don’t have a credit history. Also, high-interest rates can negatively impact future bigger purchases.
To get great terms on larger loans, start by getting small and easy-to-pay loans. When you pay off a small loan quickly, you gain brownie points in your credit history.
Training and Development
Staying on top of your business game requires staying on top of developing innovation and trends. Obtaining funding for development and training for you and your team is a great way to secure your success. If you are a small business with a small workforce, training is essential in keeping your team competitive.
Of course, no business should take on unnecessary debt. But there are times when a loan can improve your bottom line or keep your business afloat. Before you take out a loan, always weigh the benefits and the cost of a loan.