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- Why Do Small Businesses Need A Loan
- The Advantages And Disadvantages Of Getting A Loan For A Small Business
- How To Get A Small Business Loan
- Best Practices To Get A Yes When You Are Asking For A Loan
Reading time: ~4 minutes
Do you want to take a business loan? This guide will help you to find out how and why. It will help your business. As a small business owner, you’ll require funding from time to time to support your business operations. Whether it’s to acquire new machinery to increase your production or expand to a bigger store, you’ll need financing.
Since your sales proceeds may not cover the considerable funding gap created by the need to expand, you’ll want to access a small business loan that you can repay based on future sales. Nonetheless, getting small business loans has its pros and cons that you need to be aware of.
Fortunately, we’ll take you through it all so that you can apply for a small business loan like a pro.
Expanding your business may entail getting a bigger store, setting up an online store, or having a new product line. A business loan allows you to acquire and renovate a new space or pay for the technology needed to set up an online store. A line of credit enables you to buy more inventory for your business or hire more staff as you expand the business.
The cost of acquiring, replacing, or leasing equipment for your business can be high. You may need to upgrade equipment to keep up with the competition or replace obsolete technology. With a business loan, you can easily replace your machinery without affecting your business cash flows.
If you’re running a seasonal business, you need to stock up in anticipation of a peak season. You’ll need financing to make purchases for the holiday season. A short-term business loan can help settle the need to stockpile for the busy period ahead.
Small business loans can alleviate the shortfall in cash flows and help bankroll a marketing campaign to attract business over an upcoming season. Borrow wisely against a solid sales projection so that you’re able to repay the stocking loan after the high season.
Occasionally you may come across a viable business opportunity that requires an investment that’s way over your business cash flows and personal savings.
That may include an opening to purchase inventory in bulk at an attractive discount, or an opportunity to supply in size to a ready market, or having a stand at a strategic exhibition with the potential for exponential business connections.
If you’re a contractor, you’ll often come across deals where you’ll need a business loan to purchase construction material, hire expensive machinery, and pay for labor before you’re paid.
You’ll have to ascertain that the returns are worth the debt by critically analyzing the opportunity. Don’t let the excitement of making a profit blind you to the actual cost of the investment at hand.
The needs of your growing business may require that you tap into a more sophisticated workforce to realize growth. You may need to borrow to hire short-term consultants or seasonal freelancers and sales staff.
- You maintain control of the company; unlike equity financing, where ownership is shared with investors, banks don’t need a share of the business to lend and will not interfere with your day-to-day.
- A bank loan is short-term compared to equity financing, where the company is obligated to pay dividends to shareholders as long as it’s operational.
- Depending on your level of debt, you can improve your credit by getting a loan and repaying it well over its lifespan.
- You can make bulk purchases at discounted rates and thereby grow your business faster than you would by depending on business cash flows.
- The flexibility of bank loans; given numerous lenders from banks to credit unions, and digital lenders such as Camino Financial, you can quickly get a business loan that suits your needs and repayment ability.
- Supercharging your expansion initiatives by boosting your finances to tap into opportunities that would have otherwise been difficult.
- A complex lending process can be a blessing in disguise as it allows you to firm up your business plan and thoroughly review your borrowing request.
- High-interest rates; in some cases, the lending rate may be higher for small business borrowers.
- Stringent qualification criteria may lock out deserving businesses
- The business loan application process may be complex as lenders are more risk-averse when dealing with smaller businesses. They’ll therefore require more documentation and well-thought-through borrowing requests before they make a lending decision.
- The possibility of foreclosure if you’re unable to service the loan as needed. If the security pledged was someone else’s, it could ruin relationships.
- You risk destroying your credit history; your credit rating deteriorates when you cannot service your loans with financing institutions in time. An unfavorable credit score means you’ll be unattractive to many lenders.
- Check if you’re eligible for the business loans lenders offer to small businesses; check out your credit score, how long you’ve been in business, and whether you can afford the monthly repayments.
- Settle on the type of loan your business requires for its financing needs. As a small business, are you seeking financing to start up your business, expand, or support routine operations like buying inventory?
- Shop around for a lender who offers the best lending deal, an affordable deal, and flexible terms. Whether they can accommodate new businesses that are without collateral and how fast they lend.
- Put together all the necessary documents for the application; your business plan, legal documents, financial statements, tax returns, and bank statements.
- Fill out and submit your business loan application.
- Ensure you have all the necessary documentation as requested by the financier
- Have a business plan that’s comprehensive and clear
- Be forthright on how you intend to repay the loan; let the lender be able to join the dots on how your business will generate sufficient revenue to repay the loan over the period
- Be proactive in explaining areas of difficulty that could make the lender decline your request
- Let the lender know if you have collateral to guarantee the business loan.
Small business loans present an incredible opportunity to improve your business by supporting expansion, acquiring new assets, or supporting your inventory requirements. Seek a flexible lender such as Camino Financial who’ll support your growth initiatives.
Thank you for reading!