Updated: Sep 7, 2020
Whenever you hear the words “getting a business loan” one might think there’s something wrong and that a business needs saving. While it’s true that getting into debt for your business is not exactly what you see yourself doing, there are also some good reasons why you should do it.
Businesses are faced with a different situation brought about by the recent covid19 pandemic. According to the Washington Post, an industry survey revealed that “about 70% of U.S. small businesses have applied for an emergency loan through a new $349 billion program.” Despite the pandemic, the new normal dictates that a sense of normalcy has to be in place, and that includes doing everything possible to keep businesses survive.
While the pandemic is in itself a given factor, we give you five other reasons why getting a business loan is something you should consider.
Getting a Business Loan, When and Why you should do it
Build a strong credit history for the future
The first good reason why you should get a business loan is when you are looking at building your business credit. The only way you can apply for larger-scale financing in the future is if you already have done some short term loans. Strong credit history is what you need to make that happen and starting small and paying these short term loans on time is the way to go.
Doing this could also be a way for you to build relationships with some lenders which can pave the way for you to build connections for bigger loans.
Relocate, and expand
Expanding or relocating is a really big move. Getting a loan to do that is another big step. But if business is doing great and you’ve calculated the change in revenue that comes with relocation and expansion, then that should give you the confidence you need to get a term loan. A revenue forecast with your business’ balance sheet would be helpful at this point. This would show you the impact of your move to your bottom line.
It takes a big leap to really decide on getting a loan to finance the future of your business. But if you know for sure business is booming, you are off to a great start and taking that leap won’t be that hard to do.
Get more equipment and purchase more inventory
Purchasing more equipment and inventory is also one of the reasons why getting a business loan is good. These are the two biggest expenses of any business. Certain machinery and equipment are necessary for a business to run most especially if it is the bloodline of your business. Replenishing inventory, on the other hand, must be stable and should come plentiful. If you do not have the means to purchase these then a business will barely operate.
A loan to finance these purchases is something you should consider. To make sure if this is the best move for your business in terms of financing equipment, make sure you consider the actual needs before the wants. In terms of inventory, make sure you make a projection of sales based on last year’s data, calculate the cost of the debt, and compare that number to your projected sales. That way you would know if an inventory loan would work.
Hiring fresh talent
If you’ve been doing everything and assuming the role of marketing, customer service, or bookkeeping in your business, it’s time to let go of a few of them and think about getting fresh talent that have the expertise and fresh perspective.That means getting a new set of hands to assume a role that they can do better while you focus on the bigger picture.
Getting a business loan for this purpose is a great investment most especially if you know that the person you’re taking on to be part of your team is exceptional and innovative and ultimately brings your business at the top of its game.
Take a business opportunity that can surpass the debt
Every so often in business, you encounter opportunities that you just have to take because you know for sure that it would surpass any potential debt you could have. In this situations, you’d have to identify the return of investment and part of that is weighing the cost of the loan against the revenue you get through taking advantage of that opportunity.
If you’ve studied the numbers carefully and you know that the potential return of investment surpass the debt, then you can go ahead and proceed with that loan. Again, a revenue forecast is what you need to make sure you are making the right decision so you can 100% say you don’t rely on just a gut feeling.
If you’ve thought about getting a business loan for quite some time, these five good reasons should be able to help you assess whether or not it’s a good move. One thing is for sure, getting a business loan should not be taken lightly and it should be done with a great amount of thought. While there are risks involved in doing so, you know which ones are definitely worth it.