4 Reasons Why A Business Loan is Smart Business
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The thought of a business loan can be kind of frightening for many business owners.
The financial commitment such a transaction brings with it is scary enough. When you toss in the comments naysayers usually have, it only compounds the scariness of it. While not every reason for taking out a loan on your business is a good idea, such a loan is actually a positive undertaking so long as you use proper planning and use the funds accordingly. Here are four reasons why such a business loan would be beneficial for you to grow your company and how to determine if it is right for you.
1. More Inventory
For retail businesses, one of the largest expenses they have is inventory. They have to keep up with the demand of your product by ensuring their inventory is replenished. This can place business owners in a tight spot when it might be a while before they begin to see investment returns. Seasonal businesses deal with this more than any other type of retail business.
To determine if this situation applies to your business, you will have to create a sales projection that is based on sales from previous years. Once you have that, compare it to your calculated debt costs. This should tell you if using a loan to purchase inventory is the right move for you.
2. New Equipment Needs
In order for a business to improve, it will become necessary, at some point, to improve or expand on their equipment. For most companies, the upgrading or expanding of equipment is typically done so through financing due to the enormous expense associated with such an undertaking. It’s easy to see why when all of the associated costs are taken into account. First, the new equipment has to be purchased. Then, usually, there is some kind of retrofit required to get the new equipment to work with what was saved from the old equipment. That means specialist are typically brought in to make it work.
Before jumping into getting a loan for your business needs, make sure you are financing just that. The “would like to haves” can wait. Stick with what you need to make your company more productive.
3. Need a Bigger Facility
When a company grows, one aspect of it will shrink, and that is the location. A restaurant, for example, may not be able to adequately seat and service all of the customers it has built up over the years. In this situation, they need a bigger restaurant. It is not a negative thing to have to find a bigger place, it means the owners are doing something right and their business is growing beyond the boundaries of their first location.
To see if your company fits into this need for a loan, use your revenue forecast with your current balance sheet to get an idea of how the move will affect your bottom line. If you are looking to add an additional location to your business, make sure the area is right for your type of business. Either way, when it comes time to move, a loan will help to ensure you have enough to cover your moving or expanding cost.
As companies grow, so does their need for additional employees, so payroll becomes of their most pressing expense. New, talented employees will have to be hired on so that company growth does not become stagnant. To help cover the cost of the added personnel, many companies will acquire a loan to cover the additional payroll cost until the revenue reflects what benefits these talented people bring to the group.
If you are at the point to where you have no time to focus on one task, let alone ten, then it’s time to bring in some talented backup. Obtaining a loan to cover the initial spike in payroll is a good method to use in this situation and will provide you with the needed operating capital until your revenue adjust for the new staff.