The modern economic environment is more competitive than ever before. From time to time, you might be tempted to apply for a business loan to give your business the boost it needs to succeed, or to get your entrepreneurial dream off the ground in the first place. Not sure whether a business loan is a good idea? It’s smart to be cautious, but business loans are nothing to be afraid of when you use them correctly. Let’s break down the top eight reasons why your company might need a business loan.
Business loans are exactly what they sound like – they’re loans for businesses and their associated costs instead of personal loans you might use to pay off debt or purchase a high-priced item. Business loans, because of their intended uses, usually have different requirements from personal loans. But business loans can be excellent financial tools to help you accomplish a number of entrepreneurial strategies or help you manage your costs as you drive your business to success. Alongside their total amounts, business loans can vary dramatically in terms of their APR , term limits, fees, and more.
It's always a good idea to try to pay for things upfront instead of taking out a loan whenever possible. But starting and running a business is almost unavoidably expensive. So you might need an excellent business loan even if you're practicing good financial strategies.
For instance, it’s difficult to start a business with cash in your personal bank account unless you are already wildly successful and have lots of savings. Even small businesses with modest office space, supplies, or equipment requirements can easily need hundreds of thousands of dollars when all is said and done. Fortunately, business loans for new businesses just getting off the ground are a dime a dozen. There are plenty of business starter loans intended to help new businesses begin making a profit. Getting a loan to start your business is often wise if you have a solid business plan and can expect steady profits within a year or so, depending on when your term contract specifies you need to begin making payments to pay off the loan’s amount. Many people can’t afford to start their dream businesses without taking out a loan. Don’t feel bad if you need to take out a loan to make your entrepreneurial dream come true! In fact, Seek Capital offers business loans for this and other purposes. Contact us about our loans and see if you qualify!
Even after starting your business, you might benefit from a business loan for other reasons. For example, many businesses make steady profits in general, but not enough extra to afford a business expansion, such as purchasing bigger office or manufacturing space, remodeling a store’s interior, or opening a second location. Business loans can be invaluable if you want to commit to a pricey but potentially profitable expansion plan. Almost all businesses need to expand eventually if they want to grow and continue to progress. To that end, consider taking out a business loan if you’re looking to expand in the near future and your profits aren’t so high that you can realistically save up enough to do it yourself in the foreseeable future.
Hiring the best talent for your business costs a lot of cash. But new talent can also help you earn greater profits and make the most of the above-mentioned expansion plans. What to do? In this case, taking out a loan so you can hire a lot of extra workers may be a smart idea. This can also be a good plan if your business relies on seasonal fluctuations between customers and profits. Say that you run a water park and the summer requires you to hire a lot of talent to handle the influx of new customers throughout the summer season. In this case, you can take out a short-term business loan to hire a bunch of new employees, maximizing your profits for the next three months or so. Once the summer season is done, you can repay the loan with some of the profits you made thanks to the employees you were able to hire on short notice. You can then repeat the cycle every year, building up excellent business credit along the way.
Sometimes businesses experience a stroke of good luck and find that their customers have bought all of their available products. This is a great thing! But if you want to maximize your profits, you'll need to quickly restock your store with the product that has become so popular. Even with your immediate profits, you may not have the cash on hand to purchase enough top-selling stuff to start another buying wave from your customers. A business loan can help you purchase a lot of inventory and potentially double or even triple your profits in the short term. Short-term business loans are a great idea in this circumstance.
Moving is expensive for everyone, but especially for businesses! You not only have to secure new space for your business’s new storefront or office, but you also have to pay for moving all of your equipment from place to place. Those costs can quickly add up. If you don’t have enough saved up beforehand, it could jeopardize your next fiscal year. A business loan can help you move from your old location to a new location. This can even be a smart financial strategy; if moving to your new location will help your customers access your storefront more easily, for example, you can expect more profits in the future that can help you pay back the loan’s cost.
Similarly, your business may need to upgrade its equipment eventually, especially as it sees success and gains additional traffic. But if your current profits are tied up in salaries, insurance, and even paying back earlier loans, another business loan to help you upgrade your equipment and pursue greater profits without having to wait too long. Naturally, this type of loan requirement is dependent on your industry. Some places will have more expensive equipment to upgrade or purchase than others. But farming is one such industry where business owners (farmers, in this case) will often take out loans to purchase new equipment to produce a greater yield over the following year. Then they pay back the loan with the extra profits they made as a result.
There’s evidence that up to 82% of businesses end up failing because of poor cash management. In order to ensure that your business stays afloat, you have to maintain adequate cash flow (i.e. profits coming in and being spent on business necessities and fees). A business loan can help you maintain adequate cash flow throughout a dry period. Many businesses utilized business loans to increase their cash flow artificially during the COVID-19 pandemic. The pandemic slowed down business throughout most industries, so many retail or brick-and-mortar businesses needed a little cash injection to stick around. Once business picks up again, these businesses will likely be able to pay back the loan and return to revenue as usual.
Sometimes there just isn’t enough room for two businesses that are similar to one another in the same market region. Say that you opened up a coffee shop and someone else opened up a coffee shop a few months later just down the street. This is a bad situation for both you and your competitor. The same number of coffee drinkers exist in the shared market region, so you may bleed one another dry until you both have to close up shop. It may be a smarter strategy to take out a loan specifically to buy out your competitor or to purchase the competing store to become your partner store. These loans are naturally quite expensive, so consider this path with care. But it may be the only way to prevent your business from losing customers progressively just because you have a similar competitor in the same region.
This list is far from exhaustive. In fact, there are at least dozens of distinct reasons why you might need to take out a business loan for the health of your company. But the bottom line is this: taking out a business loan is far from irresponsible. In fact, it may be the most financially responsible thing to do. You just need to make sure that you take out a business loan for the right reasons. Need more financial advice, or are you interested in checking out great business loans ? In either case, contact Seek Capital today . Sources https://www.entrepreneur.com/article/187366 https://www.businessnewsdaily.com/5-small-business-start-up-costs-options.html https://www.bankofamerica.com/mortgage/learn/apr-vs-interest-rate/