The Best Ways to Use A Loan to Grow Your Business

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.

Purchasing Equipment

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.

Benefits of equipment finance

Hiring Employees

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.

Buying Inventory

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.

Business Plan

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.

Applications

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.

Personal Loans

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.

SBA Loans

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.

Equipment 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.

Credit Lines

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.

In Conclusion

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.

How to Get A Business Loan With Bad Credit?

Whether you open a business or want to expand an existing one, you at some time will likely need a business loan. Regardless of your situation, you may need a business loan with bad credit because not every business person has a credit score of 800.

Before you jump into applying for loans, let’s look at your other options. Despite where you’re reading this, as a business owner and finance writer, I will tell you that a loan should be your last resort, not your first choice. A lot of people jump at the chance to take out a loan because it seems easy. It seems like a choice that will provide them all the money, all at once.

They do not consider the interest added to the principal of the loan and how much it will add to the cost. Nor do they think about the fees. They do not consider what will happen if their business hits a rough spot and their revenue slows down. They just think, “Hey, here’s a quick way I can get the money I need.” So, before we jump into applying for bad credit business loans, let’s look at how to finance a business.

How to Finance a Business

You really have a wide range of choices in funding opportunities. You could suss out angel investors, venture capital, go public, fund your business with a cryptocurrency token, gather private investors, crowdfund or use a combination of these. Then, when you have exhausted all of those opportunities, you turn to taking out the smallest loan you need. That may mean applying for a micro loan or a standard small business loan. The best place to start for the latter in the US is the Small Business Administration. So, let’s explore each of these succinctly and you can read more about the choice that resounds most with you on your own.

Before you begin, examine your actual financial needs. You should be applying for the lowest amount of capital needed for two main reasons.

First, most organizations, especially lending institutions, loan or invest based upon your ability to pay it all back. Now, you might think, “Hey, an investor doesn’t get paid back. They don’t make a loan, so there is no interest.” Insert angry buzzer sound here. Your investors expect a hefty return on investment. They anticipate that when they invest in your firm or startup they will earn money from it. Either way you go, you should ask for the smallest amount. If it comes from an investor, you can buy them out more easily and go back to being the sole owner of the company.

Second, both lending institutions and investors recognize padding when they see it. Padding refers to when you add extra funding need needlessly. For example, when you create a line item budget and include a laptop computer with a terabyte drive, but the amount of cost you include is twice what the laptop costs. You padded the cost.

Loan officers and angel investors aren’t dumb bunnies, as my Daddy used to say. They recognize padding when they see it. They know what things cost because they look at budgets and budget requests just like yours every single day of their lives. It is the majority of how they spend their time. Your accuracy in your budget and budget discussion shows them your overall accuracy. It also reveals your honesty and transparency. Few people want to loan or invest with a dishonest liar who they have no idea how they are spending the money. Determine the smallest amount of funding you need and chase that amount with ferocity.

Despite all the preparation, prepare yourself to receive less funding than you requested. Less than half, 46 percent, of businesses receive their full funding request. If you already bootstrap your business, prepare to tighten up things further. Waste not, want not – another favorite of my father.

Angel Investors

Many startups hope and pray they’ll land an angel investor. It’s tough. Mainly, three reasons make it hard to land an angel.

  1. They like to remain anonymous.
  2. They typically do not know you.
  3. You need to already have a minimum viable product (MVP) prepared to present.

A very few wealthy individuals or families have formed investment offices to screen potential investment deals. You will need to angel investors that understand your industry and business model. You can check Angel List if you just began your firm, but if you already established, check with board members and business advisors first. Your best bet is an individual or family with whom you already have an established relationship.

Venture Capital

Established firms or startups can seek financing from venture capital (VC) firms. A VC bears close resemblance to an angel investor, except that the angel may be an individual more often than a VC would be. Typically, you will find a VC firm comprised of a group of investors with significant business experience. This firm may provide much more than funding, including:

  • strategic assistance,
  • potential client and partner introductions,
  • assistance drawing high-quality employees,
  • other business growth advisement.

Similar to the tough time landing angel investors, you’ll also find it challenging to obtain venture capital financing. You need an introduction to the VC. Most cold calls go unreturned and feeler emails get ignored. You need a colleague who knows the VC well to provide an actual face-to-face introduction.

At this introduction, you’ll have an opportunity to hit them with your elevator pitch. That refers to a 60-second or less description of your company or product. Until you can describe what you offer in one minute or less and make it sound great, cataclysmic, amazing, you aren’t ready. You also have to be able to prove what you said you deliver in that elevator pitch.

That pitch starts you on the process to getting a meeting. Simply setting up the first meeting can take weeks after your introduction. You get one shot. Go listen to Eminem “Lose Yourself” a few times before you launch into your presentation. Ah, your presentation… make it 15 minutes or less. Include tons of relevant, meaningful graphics. Bring an actual MVP with you with emphasis on the “V” for viable. You need to show the investors that you could take their money and genuinely enter production phase today.

If you do not yet have a MVP, you aren’t ready for this. Take your financials and your projections with you. Be prepared to get hit with every conceivable question. If you watch a few episodes of “Law & Order” in which the district attorney totally grills the perpetrator, you’ll have a relatively accurate idea of what this will be like. Don’t be shocked if they ask about your personal finances, too. At this level, as with angel investors, you are typically asking for a mountain of money. Between the time of your introduction and your meeting, you will be vetted. Expect full background checks.

Here’s why beyond the fact that you are asking for a ton of money. You are also adding a business partner(s). Most angels and VCs expect to either come on as a silent partner or to place a board member. They are buying into your business. Their upfront capital for your startup or expansion comes at a price. You will share ownership of your business with them. Their investment increases the your business’ creditworthiness. Landing a VC can be tough, but worthy.

Initial Public Offering (IPO)

In today’s business climate, you have a choice between methods of initially going public with your business. If you choose the traditional route, your company will offer a public sale of stock via an initial public offering (IPO). From this you will amass a group of shareholders to whom you pay dividends when revenue is good. These shareholders obtain voting rights in major company decisions. You must undergo a formal process with the US Securities Exchange Commission (SEC) which includes a not so small mountain of paperwork. The SEC also sets rules for how you can run your IPO and the regulatory environment remains complicated. IPOs only work for those with an already established business.

Initial Token/Coin Offering (ITO/ICO)

Your other option in today’s business climate is an initial coin offering (ICO) or initial token offering (ITO). This option creates and sells a cryptocurrency coin/token on a blockchain. Unlike stock, the coin or token offered on a distributed public ledger, theoretically gains value and allows the purchaser to resell it on an open market. Startups or existing businesses can use this as a method for fundraising. Depending on the type of token issued, you may have to adhere to SEC rules similar to those for an IPO. Tokens provide a great way to raise seed capital, especially for those not yet to point of proof of concept. You do need a well-researched whitepaper describing the proposed minimum viable product with a complete competition analysis. With an ICO/ITO you retain control and management since you give up no voting rights to shareholders.

Private Investors

A friendlier way to obtain funding is to take on private investors. This includes friends, family and customers that might have interest in your business. Again, you will add business partners and they can want varying degrees of control. As with VCs, the private investors add their creditworthiness to your business. You also benefit from their collateral and industry experience.

Crowdfunding

Crowdfunding has become a go to for startups. Register with any of the major crowdfunding companies to gather funds from a multitude of micro investors. You can start a campaign on Indiegogo, Kickstarter or GoFundMe. Each website uses different rules. Some require you to raise the full amount to access funds while others allow access to partial funds.

Bad Credit Business Loans

After you have exhausted all of the above possibilities, turn to the option of a obtaining a business loan with bad credit. You may by this point need to take out a much smaller loan than previously. This is awesometastic.

This will save you money in the long run. The less money you require, the less money you have to pay back. That matters even more if you have bad credit. Here’s why.

When you have bad credit, you will not qualify for prime interest rates. Prime rates, the lowest interest rates available, go to those with exceedingly great credit scores. You would need a 680 to 720 to qualify for a prime rate loan. Those are the loans that provide interest rates of ten percent or less.

Bad credit to you might mean a credit score of 300 or so. To a bank or lending institution, it means anything under 680 or so. To a bank, you’re either a sure thing or nothing. Your credit score lets them know how likely you are to pay off your loan.

Remember that when you start a business, you will not have the business’ clout or finances to back your loan. You have your own personal finances. So, if you have bad credit or no credit, you need to obtain as much of your funding from a source besides loans as possible.

Spend a little time building your credit score up. You can start this process by visiting Creditry.com. The site will help you take charge of your credit and get things under control.

You need to get copies of each of your credit reports. You will have three – one from each of the credit reporting agencies. Study your reports to determine whether each is correct.

Complete a report form for any mistakes you find. Each credit reporting agency has its own. The agency will investigate your report and make an inquiry to the organization that issued the credit information.

If it really is a mistake, the agency removes the negative information from your report. If it is not, you will have an opportunity to discuss it with the creditor and make a payment plan. Either way, you will produce the result of improved credit.

You can begin this process when you first start your business financing activities. That way, while people are checking your credit score, potential investors will see it continue to move up. When your score improves while you are applying for funding, potential investors and financial lending institutions look upon this favorably. By the time you have exhausted all other possibilities for funding, you will have an improved score and be ready to apply for loans.

You now need to determine which loan type you want. You may still need a significant amount of start up or expansion capital. In that case, you need a standard small business loan. After all the other funding pieces, you may only need a small amount. That means you could use a micro loan.

Standard Small Business Loan

As I mentioned, you can still get a business loan with bad credit. It will not provide the prime interest rate you probably hoped for, but you can obtain a business loan. Remember that unlike all the other funding types discussed which bear closer resemblance to grants, you must pay back a business loan. You are just borrowing the money. The lender will charge fees plus interest. You literally promise, via a legal contract called a promissory note, to repay the money, typically in monthly installments for a specified length of time. Depending on the loan, you may or may not make a lump sum payment at the end of the repayment period.

You can opt for an unsecured or secured business loan or a line of credit. You will probably find it simplest to obtain a secured business loan since this uses collateral to guarantee you will pay back the loan amount. An unsecured loan is much tougher to get since you have provided no promised collateral that you will repay it. The third option is a line of credit. You typically get a line of credit based upon equity in your home or business.

Shop Business Loans

You probably do not think of shopping when you think of business loans. You can shop for them though. Visit Loanry.com to use the awesome loan mall there.

You will simply need to complete a really short form with basic identifying information which will enable Loanry to match you with potential lenders. Remember, Loanry is just there to make the process easier, but Loanry does not make loans. Lenders do. Additionally, if you use a loan mall, you avoid reducing your credit score since a soft check is conducted, and not a hard one.

Loanry then may connect you to potential lenders that typically loan to individuals with your credit score and situation. It does not mean that you will qualify or obtain a loan from them. It just reduces your research time by finding potential lenders for you. You still need to fill out the loan application from each lender that’s on the list.

Do not apply for all of them at once. Go through the list one at a time. Wait for a reply. If you get turned down, you move on to the next lender. If you get a yes from a lender, you are done.

Every loan application costs money. You must pay an application fee to be considered for a loan. These can run as high as $50.

In Conlusion

You can obtain the business loan you need. It may not be easy or quick, but you can get the money. Start with the methods that do not require you to pay back the loan. Move on to business loans for bad credit only when you must. You can get your business off the ground or expanded. It takes time, effort and hard work.