Reasons Taking a Business Loan
Letting the people around you know that you are planning to get a business loan can be met with various opinions. From cautionary anecdotes to general naysayers, everyone will come up with what happened to them or what might happen if you take a loan to expand your existing business or start a new venture.
Though it is true, not every reason to take a business loan is an excellent reason to get into a debt situation. However, that in no way means that there are not enough good reasons to take a business loan. If you are 100% confident that your business is ready for the big leap and you do not have the necessary working capital, you can consider taking a loan. So, here, we have come up with a few reasons when choosing a business loan is a great idea.
When you wish to expand the physical location of your business
Expanding your business is a good sign; it means that your business is booming and progressing. But simply because your business is ready for expansion does not mean that you have adequate funds to make it happen. In this case, you can consider taking a loan to finance your expansion. Sarah, an advisory for TrumpLearning, says that they took a loan for their business when they had to expand their global boundaries, and it did turn out to be a profitable decision.
Be it adding a new location to your business address or just picking up the stuff from your old site and moving to the new one, the overhead and front cost can be significant.
So, before you plan an expansion by financing, you should measure the decision and the revenue that it could bring. Would you be able to cover your loan costs, and still gain adequate profits? You can use a revenue forecast in addition to your balance sheet, to see how this change can impact your bottom line, and then make your decision.
You need newer talent for your business
When you start a business, as a business owner, you are forced to adorn several hats. However, with time, the bookkeeping, managing the social media, handling the customer service, might wear on your business and you. Please know that if you or your entire team is engaged in a couple of tasks, something will fall eventually, and that wouldn’t be the best for your business.
A lot of businesses purposely spend money on hiring new talent. They believe it is one guaranteed way to ensure that the business gets not only innovative but also stays competitive. It could be a fantastic move for your business if your hiring decision elevates your revenue.
Moreover, having more people in your team to handle the secondary work will allow you to focus on your primary goal. So, that could be an excellent reason to take up a loan.
Hence, irrespective of your decision to take a business loan, if you have factored in all the costs, then taking this business loan could undoubtedly bring in more significant profits for your business. If there’s a hazy connection between taking a business loan and a proposed increment in the revenue, you need to wait and reconsider your choices.
Always be doubly sure of your ability to repay this business loan. It could be the best way to take your business towards success. Know that all business decisions have a bit of a risk associated with it. So, make your move only if that risk is fruitful.
Loan means building credit
For businesses who wish to avail large-scale financing in the upcoming years, starting from a small loan could help build credit for your business. Usually, it is hard for newer businesses to qualify for bigger loans, especially if the business owners and the business do not have a good credit history.
When you do take a small loan, you must make all your monthly pay-outs in time. This will go a long way in helping you build credit for your future. Robin, a financial planner for TAE, says that he and his company decided to take out a loan to create a more cordial relationship with a particular lender. It is a great strategy because when you return to the same lender, they’ll give you the loan at a lower rate of interest and address your application faster. However, whatever loan you take, you need to be careful.
Do not ever ask for an amount that you cannot afford. The late payments that you make for a smaller loan might deteriorate your prospects of fetching you a bigger loan in the future. It is worse than not building credit by applying for a smaller loan.
You need an asset for the business
Adding a newer asset or equipment could drastically change the working of a business. For every business, there is a requirement for some machinery, tools, IT equipment, and other assets that simplify the operation of a business. At times, you might not have enough money to dedicate to this equipment. In this case, you could also opt for equipment financing. The thing with this type of loan is that, in this, the equipment is your collateral for the loan.
So, primarily equipment financing is more like an auto loan, where you are taking the loan for the car, but your car is the collateral. However, when you opt for an equipment mortgage, do ensure that you understand the distinction between your business’s needs and what might look fancy in your balance sheet. Yes, having one margarita machine could be a lavish choice, but is it needed? In no way would it qualify as ‘necessary’ for your business unless that’s what your business is about.