Taking a start up business loan is a substantial financial obligation for a business and many argue that it is possibly the worst form of business funding. Some even go to the extent of calling a start-up business loan the last resort. Moreover, there are many people who will waste no time at all in telling you a million anecdotes about how a business loan became the reason for an enterprise’s downfall.
However, if you are new to the business world with a business idea and little money to invest, a business loan might just be your ticket to the top. Regardless of what others have to say, business loans come with their own advantages; from helping you establish your business, to facilitating the expansion process, they have a part to play in every stage of a business’s rise.
Here are some ways in which a business loan can help your business to grow.
1. Expanding the Physical Space
One of the most expensive parts of business expenditure is space. With real estate prices reaching record highs, the chances of finding an affordable property in order to increase the space you have available for your employees, can be a real challenge.
However, when the cubicles and cabins are no longer sufficient for your staff to squeeze in, and the assistants have to be allocated pantry space for setting up desks, you are in dire need of more office space.
While this is a great indicator that your business is growing at a galloping pace, the cost of expansion can be huge. You will now have to look for a new office space with all the required facilities that you’ve become used to in your previous space.
You can either rent a separate space for a department and retain the current space you have, or rent a bigger space and move the entire office. However, no matter what you do, you will have to bear some pretty big overhead expenses.
In such cases, a business loan can be indispensable.
2. Build Your Creditworthiness
When you consider financing your business, you should begin with small, short-term loans instead of more cumbersome ones which will turn out to be difficult to repay. This will not only help you run your business smoothly, but will also enhance your rapport with the lender.
Once you have built up a good relationship with your lender, they will be far more likely to give your business larger loans. You can then use the bigger loans to help your business through difficult times, and provide for business expansion, etc.
It is advised, however, that you do not take loans when your business cannot afford to repay them because that can spell big financial trouble, and can ultimately result in the bankruptcy of your business.
3. Buy Equipment Your Business Needs
If your business is IT-based or requires heavy machinery to carry out production, you may require a business loan to buy or rent in the equipment. We would advise that you to opt for financing options that assume the equipment as collateral rather than requiring you to use other forms of collateral..
When planning how to spend your loan, be careful to identify the things you need from the ‘nice to have’ items. Spending loaned money on items you don’t strictly need, means increasing your costs for no good reason.
4. To Fill-in the Inventory
It’s not easy predicting demand. Then again, you need to take this calculated risk and stock your business inventory whenever you see that the market is in your favour.
However, sometimes businesses don’t have enough cash for stocking up on raw materials, and this can cause missed opportunities and a delay in production. This can be truly disastrous when you run a seasonal business because those competitors that had their products ready in advance will now have the edge.
Therefore, it is the time to measure your cost of debt against the profits that you are likely to make. When you see that the outcomes are favourable, and you have taken into account all the trends and analysis available, taking a business loan in order to boost your inventory is a good punt.
5. Taking the Business Out of Stagnation
Sometimes, business reports might show that your business is stuck in a place where it is not able to grow. The product has become stagnant and no new customers are willing to buy it. In such cases, the business needs to take a risk and shake up its business strategy.
Shaking up the strategy can take a heavy toll on your business’s finances because everything from production to marketing has to be revamped. Therefore, you should measure the cost of debt against the expected revenue before taking the loan.
Make sure that you do not end up underestimating the costs and overestimating the potential of your relaunch. Instinct-based decisions seldom bring in profits, at least not as much as number-based decisions do.
6. You Need to Re-staff
If your business is a start-up, there is a possibility that you are the CEO, Product Manager, Accountant, and Marketer all in one. While a start-up can benefit from leaving all the power in one hand, as the business grows, you will need to decentralise and delegate.
Increasing complexity and scale of operations will require you to hire separate heads for your sales and marketing department, accounts department, production department, and purchase department. This will not only save the overlapping of operations, but also help you focus more on the key business decisions and changing market trends.
To hire in new managers, you will need to find money for their salaries. Your business will profit from a well-qualified and experienced top-level management team, but it will come at a cost which might only be met through a business loan.
The Bottom Line
In brief, when you have thoroughly weighed the possibility of making profits out of your expenditure, a business loan can take your business places. However, if the circumstances don’t seem profitable for the business, refrain from taking a loan and work out a new strategy.