Having capital available is essential to growing any business. You can take advantage of growth opportunities that come up with a loan to grow your business. It’s good for you to put research into the ways that you can use a loan to grow your business.
Achieving excellence regarding your product or service is an important part of achieving success as a business. However, another important part of achieving success is knowing how to manage your company’s finances. You should know how to get a loan and where to look for financing. You should also know what the different types of business loans are that are available to you. Analyze the pros and cons of each of these loan types to pinpoint the best option for each borrowing situation.
Determining What to Use Loan on to Upgrade Your Business
Perhaps there are numerous things you need capital for. If this is the case, you must decide the best way to use your loan to grow your business. Every business has numerous expenses. Some expenses come from necessity. Others result from efforts to seize opportunities. Others are investments you make in your company that you hope will pay off long term.
Gauging Your Need to Borrow
Never borrow money for your business without thinking things through carefully. Taking out a loan will impact your company financially. There are many things to think about before deciding to borrow a loan to grow your business.
Borrowing puts your company in debt. This doesn’t necessarily make borrowing bad. However, it does mean that carefully analyzing your situation is essential. Before deciding to borrow, have a good reason to borrow. The following are some important things to do when you gauge your need to borrow.
Here are some possibilities to consider if you have many possibilities for what to use your loan on.
Renting or Purchasing a Business Facility
Having a fixed place of business is essential in most industries. Unfortunately, commercial real estate is expensive. Whether you rent or buy, your facility costs could make up a significant percentage of your expenses. That’s why borrowing to cover real estate costs is common.
Available real estate is often not available for a long time. This is a big reason to borrow. The perfect facility may be perfect for your competition too. That means it won’t stay on the market long. Therefore, you may need to borrow to jump on good real estate opportunities.
Equipment tends to be a huge expense for startup companies. Startup business financing is often used to purchase equipment. Depending on your industry, it might cost a lot of money to buy the necessary equipment to get into the business.
Like real estate, equipment is often available through fleeting opportunities. You need to make the purchase now or that piece of equipment will sell to someone else.
You might already be established and want to purchase updated equipment. New equipment might increase your productivity and efficiency. When you have an opportunity to be more productive with better equipment, you should take it.
Any company that keeps growing eventually needs to hire employees. Employees allow you to get more work done. They also free up your time to focus on management tasks.
Unfortunately, labor costs are notoriously high. They are made even higher if you have to purchase worker’s compensation or health insurance to hire workers.
If you own a retail store, you can invest in inventory to sell more. The more product you have available, the more potential you have to make money. If you buy inventory in bulk, you’ll probably pay less. The savings you enjoy from buying in bulk could justify borrowing to purchase large amounts of inventory.
Covering Expenses During Downtimes
It’s not uncommon for business owners to need loan funds for emergencies. If you’re experiencing downtime, you still need to maintain cash flow. You might have to put all or part of your loan funds toward everyday expenses.
Don’t fret if you need to borrow to cover expenses. Most companies experience downtimes and struggle at some point. It’s important to borrow carefully in this situation. Hopefully, you know that business is going to pick up soon. Once business picks up, you can pay off your loan and continue to grow your business.
Important Steps to Borrowing for Business Growth
There is a process you’ll need to go through to take out a loan. While the process varies slightly by loan type, there are some steps that are common to any financing type. It’s important that you understand the process before you get started. If you’ve never taken out a business loan before, there are some things you should know.
You need to go through these steps correctly for the best possible loan type. The following three steps will be necessary regardless of what business loan type you pursue.
Planning is essential. When you borrow a loan to grow your business, you should work out a detailed business plan. Borrowing and investing money is a whole new business venture.
The business plan should include many details. You should determine what you will spend the money on. You should determine how much money you will spend. And you should also create a time frame for the project. As part of the business plan, determine who you will borrow from. Determine where you will buy the supplies you need or how you will find new employees, for example.
Another important part of your business plan is determining your new budget. After borrowing, you’ll need to repay your loan. This means you’ll have an added expense in your monthly budget. You need to account for this expense in your budget and figure out how it will impact your total budget.
The more effort you put into your business plan, the more confident you can be in your decision to borrow. As a business owner, you may already be familiar with the process of formulating a business plan. Any skills with planning and organization will benefit you significantly in your new project.
Necessary Information and Documents
There are a lot of documents that could be needed. The lender may want to see your bank statements. The lender may also want to see your balance sheets. Another type of document that is often required is your tax returns. Time in a business report is probably necessary. The longer your company has been in business, the easier it will be to find a loan offer.
Your original business plan and your business plan for your current project might be helpful. It’s good to be organized and thorough regarding your documentation. You want to make sure you’re coming across as professional to the lender.
If you are a business owner, you will most likely have a moment when you consider a business loan. To get it, you will need to gather certain documentation. #businessloan #businessadvice #BusinessGrowth
— Loanry.com | Loan Shop ? (@LoanryStore) January 26, 2020
When you have a business plan and essential documents, it’s time to apply. You’ll probably want to choose one or a few lenders to apply with. When you apply, your credit history is checked. This can negatively impact your score if it happens too frequently. It’s, therefore, best to limit the number of lenders you apply with.
Some loan applications are longer and more detailed than others. Generally, you’ll have to enter information about the history of your company. This includes how long you’ve been in business and what your earnings are.
Some lenders these days can get back to you very fast about whether you’re approved. Also, some lenders send out funds quickly to those who are approved. Once you get a response, you can evaluate any loan offers you receive. Remember to carefully compare offers to choose the best option.
Types of Loans Available to You
If you’ve determined you need to borrow, it’s time to shop for a loan. These days, business owners have so many options. Numerous loan types cater to business owners looking to expand. If you don’t like to feel pressure while repaying a loan, think about long-term business loans. Here are the basic loan types you’ll choose from.
A loan to grow your business can come in various forms. The following are five of the main types of loans to choose from.
Many business owners use personal loans to fund their businesses. If you want a loan to grow your business, you should consider personal loans. Also, you can use personal loans to start your business. Personal loans are an especially good option if your personal credit is good but your business credit is not yet established.
When it comes to personal loans, the interest rate can vary significantly. The better your credit is, the lower your interest rate will be. Personal loans offer the advantage of giving you complete freedom with the funds. You don’t have to spend personal loan money on a particular expense. Generally, you won’t have to submit a business plan to the lender. You need decent credit but can spend the funds as you see fit.
An SBA loan is a loan that the Small Business Administration guarantees. Any business owner should check this option out. The big advantage of SBA loans is that their interest rates are low. One disadvantage is that these loans can be difficult to qualify for.
The process for applying for an SBA loan is fairly involved. You will need to submit a lot of documents. You will also have to answer a lot of questions about your company. However, the very fair terms of SBA loans make them appealing to you. These loans are designed to help small businesses. They’re therefore more forgiving and helpful than traditional business loans.
If you need to borrow to purchase equipment, consider an equipment loan. An equipment loan is a lot like a vehicle loan. You borrow to purchase equipment and the lender owns the equipment until you pay off the loan. Of course, equipment loans can only be used on equipment purchases.
Equipment loans are secured loans. This means that they are often easier to qualify for than personal loans. It also means that their interest rates tend to be on the low side. An equipment loan could be a great way to purchase equipment or upgrade existing equipment.
Real Estate Loans
If you need to purchase a business facility, a real estate loan may be the answer. These are basically like equipment loans but for real estate. They are secured loans. The property you purchase will be the collateral on the loan.
One possible difference with real estate loans is that they may offer better interest rates on average than equipment loans. Interest rates are good because not only are the loans secured, but the collateral is a fixed piece of real estate. This means that you cannot run off with the asset if you can’t keep up with payments.
A credit line could be the best financing option for your business. Credit lines are good options because they offer a great deal of flexibility. They offer funds that are readily available should you decide to spend them. However, you don’t have to spend all the funds a credit line makes available to you.
The flexibility of these credit lines does come with some cost. That’s because interest rates are often higher for business lines of credit. You could possibly enjoy lower interest with an actual loan.
That being said, credit lines are great for funding ongoing projects. You may be offered more through a line of credit than through a loan. Some suppliers offer their own credit lines to regular customers. It can be easier to get approved for a credit line through a supplier than through a financial institution.
Importance of Expenses You’ll Spend Funds on
You never want to spend business loan funds frivolously. If you’re taking out a loan to grow your business, you’re probably using funds on nonessential expenses. However, that doesn’t mean you should spend loan funds on just anything.
Only borrow to spend money on expenses you know have a good chance of growing your business. You want to take as small a gamble as possible with your company’s money. It can be difficult to predict the success of some investment projects. Just do your best to gauge the risk of the project before deciding to borrow.
Your Company’s Financial Situation
It’s essential to evaluate your financial situation. Taking out a loan to grow your business isn’t a good idea if you’re struggling financially. If your company is not doing well financially, you don’t want added expenses. Borrowing means the added expense of making a regular loan payment.
You may be able to arrange a loan with deferred repayment to borrow despite poor finances. However, you need to realize that you’re taking a gamble. Work extra hard to make sure that borrowing doesn’t put you in an even worse situation.
If everything is going well financially, take out a loan to grow your business. Borrowing may make your already profitable business even more successful through growth.
Costs of Borrowing vs. Benefits of Having a Capital
One good thing to do before you borrow a loan to grow your business is to compare the costs of borrowing with the benefits of borrowing. If possible, do this using numbers. You might not be able to determine the exact return you’ll get on investing your loan funds in your business. However, you should at least make an effort to estimate.
Another factor to consider is what you’ll miss out on by not borrowing. A lot of business opportunities are fleeting. If you don’t have the capital at the moment, you must let the opportunity pass you by. This means you’ll miss out on the growth and profit opportunity. Consider the lost opportunity cost of not borrowing when evaluating costs.
Taking out a loan to grow your business shows your ambition for your company. It takes money to make money. Fortunately, just about any business owner has some options these days for getting a loan. Even bad credit business loans are available. Borrowing could be the option for you, but make sure you do it right. Too many business owners struggle because they borrow too much or too carelessly.
A good business owner never jumps into a big decision. Taking out a loan is a big decision for your company. Be thorough in your research and planning. You shouldn’t borrow until you know you’ve found the best possible offer for you. Once you research and plan, enjoy the excitement of starting a new venture with your company.
Katherine Davis is a freelance writer specializing in the subjects of finance, banking, and investment. Based in New York City, Katherine’s experiences combating the Big Apple’s outrageous real estate costs and living expenses have provided her with some great budgeting insights on stretching a dollar. A graduate of Penn State University, Katherine advises millennials to be disciplined when it comes to their finances and to start investing as soon as possible.