Top Reasons to Get a Small Business Loan
The reasons we’re listing here relate to start-ups and existing businesses, so they’re relevant to most firms.
1. Purchasing Equipment
When you’re starting up, you need the relevant tools and equipment to get up and running.
Later, once the business is established, you’ll occasionally need to buy new equipment to either replace your existing kit due to wear or malfunction or support the company's expansion.
2. Purchasing Inventory
You need to have stock before you open your doors, so you need the initial investment.
You also need to consider seasonality and emerging trends. You may not have enough cash to invest in a stock when you need it, so a loan can help to cover that, with the expectation that you’ll recoup the cost of the loan through the sales generated.
3. Cash Flow
Also known as working capital, there may be times when you need to make up for a temporary shortfall in income. For example, if you have customers with unpaid invoices, you can’t always wait for them to pay before reinvesting the money. The rest of your business needs to keep working.
Consolidating debt is another reason that a small business loan could help your cash flow.
4. Prepare for a Future Bigger Loan
If you have a new business, it probably doesn’t have an extensive credit history, limiting your borrowing power.
However, by taking out a small loan to begin with, and building your credibility by paying it on time, you may be able to secure more favorable terms when you need to borrow a larger amount in the future.
Once your business is established, you’ll naturally want to expand your operation.
That will probably incur costs relating to new or additional premises, recruiting additional staff, and additional marketing to let everyone know about the changes.
Taking a loan to cover your expansion expenses will avoid having to take them out of your operating profit. That way, you can avoid any impact on your day-to-day profits while the new investment starts generating its own income.