Small businesses are usually in a fragile state when it comes to funding. Maybe you’ve expanded your business to be quite large in scale or you might just need a little bit of funding to make that push. Whatever your reasons are, the fact is that a small business loan can help out a lot of new businesses stay afloat.
We’re going to be seeing why you might need a small business loan. This article will come in handy when you’re confused if it is the right time to do so because taking a business loan for the right reasons or wrong can make a huge difference.
1. Fill the Inventory
Your business needs to have good quality inventory in stock at any point of time when the business is in season. Maybe if your business is seasonal, you don’t need a full inventory all year long, but if it isn’t then you probably should. Since inventory makes one of the biggest expenditures for any business, a loan might be very justified.
To assess if you should go for the loan or not, you can analyze the previous year’s data. Make sure to gather the data for multiple years and also ensure that the comparison is done for the same time of the year. This should give you a rough estimate and if the cost-to-benefit ratio is high then you should probably get a loan. Getting a loan will not only help your business stay afloat but will also present chances of expansion as well.
2. Equipment Purchase
Just like inventory, another most crucial expenditure for your business is the equipment purchase. While trying to get more equipment, there is usually the choice of leasing it or buying it. Although there are different benefits associated with the forms of equipment acquisitions, the long-term profitability which is important for businesses is not equally present in both the different modes of acquiring equipment.
With leasing, the per-year cost will be lower initially but in the long-term, having your own purchased equipment is more efficient. Added to that, the various tax exemptions and special small business benefits by the government make purchasing your equipment seem like a very lucrative prospect.
Another common reason to take a small business loan is the desire for expansion in almost every entrepreneur’s head. Everyone starts their business with the ambition of making it big but their emotions shouldn’t dictate their choice of going for a loan. Business owners are usually more than happy to take the leap when it comes to increasing the size of their business but they often do it without much thought put into the decision. Contrarily, the decision shouldn’t be done hastily since it has long-term consequences for the business so you should carefully evaluate your situation.
Before going for expansion, you need to calculate the potential change in revenue from the shift in location. Will you be making more money or will there be a period of losses? Can you absolutely not delay the expansion at all? All these things should worry you before you decide to opt for a loan. If you’re still in doubt then you can compare the various loan options available in the market. Specialists say that Nav provides SMBs with financing support so that small businesses can easily go for a loan. They even offer personalized matches for business owners but be sure to make adequate comparisons and analyses before you apply for a loan.
4. Building Credit
A smart move on any business owner’s part would be to start building their business’s credit history. Just like people, businesses also don’t get credit from banks without any credit history. The problem arises when you decide to go for a big loan in the future and the bank denies you such a huge amount due to no guarantee of reliability or credit record of your company.
If you take a loan right now and start paying that loan back at regular intervals without fail then your credit history will increase. This will come in handy when you’re applying for a larger bank loan in the future, as most banks will give you a loan comparatively easily if you have maintained a good credit history. Even so, don’t go for this option until you’re 100% sure that you can repay the loan with little to no issues, in addition to paying each and every installment on time. If you even miss one single installment then your credit history will be much worse than when you started.
5. You Believe You Need To
Most probably there’s no one who understands and cares more for your business than you do. You might believe that there is an opportunity in which to invest and it can yield huge benefits, but other people might not. You can’t make decisions for your business based on the popular sentiment among your friends and family.
You know when is the right time for your business to hire new talent because you are the one who has been dealing with the lack of it for the past many months. No one else knows more than you that there is a business opportunity that has potentially huge benefits compared to the investment. Apart from yourself, nobody might believe in this strategy but you have thoroughly researched it, and in this case, you should definitely go for it. After all, you started your business to be yours.
These were just some of the many reasons you might have for taking a loan for your small business. Every business is different and similarly, every business has different needs as well. If you’re thinking about getting a small business loan then you should definitely try and follow the above-mentioned tips. It’s important that you’re cautious about the future and be fully aware of your business’s present condition. If you keep these in mind while making your next business decision, you’ll never miss a shot and all your loan decisions will be on point.