If you are considering getting a loan and you spread the word you will get to hear all sorts of opinions. Some cautionary naysayers tell you everything that can go wrong if you take out a loan to expand or start your new business. Everyone you meet will have a story to tell related to business loans.
It is true that not every reason is good enough to take out a loan because the immense burden of debt can crush you. But, doesn’t mean that good reasons don’t exist. Therefore, in this guide, we have listed down 5 major reasons to take a leap, and apply for a small business loan. You can find the best loan option for your business at nav.com
1. If You Want To Expand Your Physical Location
If your new employer had to set their office in the kitchen and your cubicles are overflowing with people, then you most definitely need a new office location. Or maybe if your restaurant has become the town’s new favorite place and you can’t fit all of your customers inside your space.and that is great news! It is common to outgrow your initial location if your business starts booming. You can benefit from it and expand your business.
However, just because your business is doing well, doesn’t mean you have the capital in hand to make a big change. So in that case, you can consider taking a term loan to support your big move. From packing up and moving to setting up your new location, the moving cost will be significant.
But before you go into debt, you should analyze the potential change in revenue after expanding your location. You need to ask some questions before you commit such as will you be able to cover your loan cost and still earn some profit? You can use a revenue forecast and know how the move would impact your business in the long run.
2. If You Want To Build Strong Credit For Your Business’s Future
You can start by taking a smaller, short-term loan to build your business credit. You can later use this loan to finance your business in the next few years. And then you will also be able to apply for a larger-scale business loan.
With a weak credit history to report, it can be close to impossible for new businesses to qualify for larger loans. So you can take out a smaller loan and make regular on-time payments to make your and your business’s credit stronger for the future.
By doing so, you can also make good contact networks and build strong relationships with the lenders. You can always go back to them when you are ready to get the bigger loan. But be careful here, you should not take on an early loan that you can’t afford to pay off because it will come back to bite you. Late payments on your small loan can risk your chances of qualifying for future funding.
3. If You Need To Buy New And Better Equipment For Your Business.
Getting equipment that can drastically change your business for good so it is a no-brainer for wanting to spend some money on improving your equipment. Purchasing certain machinery, getting better IT tools can improve your business offerings. But you’ll need a loan to finance all these equipment that makes your product or perform your service. You can take out the equipment financing and the equipment will also be used as collateral for a loan.
However, you should list down the must-haves and the nice-to-haves before you take out an equipment loan. Separating the needs and wants will ensure your business’s best investment. The employees may love a foosball table but you’re probably won’t need it unless you own a gaming room.
4. If You Want To Get More Inventory
Inventory can take up more than half of your business’s budget, it is one of the biggest expenses. Just like buying new and better equipment, you need to fill up your inventory with the most demanding and high-quality options. Purchasing large amounts of inventory can get difficult if you are not sure how and when will you get a return on the investment.
If you run a seasonal business you may have to buy a large amount of inventory and there are times when you may not have them on hand to make such a large purchase. Before the holiday season comes the slow seasons precede holiday and that necessitates a loan so you can purchase the inventory.
You can create a sales projection and the revenue generated based on the past years’ sales around the same time of the year. Doing so will tell you whether this would be a wise financial decision for your business. You can start by calculating the cost or the debt and compare it with the total number of sales to know if you should take an inventory loan decision or not. However, the sales figures differ greatly from year to year so make sure you consider multiple years of sales.
5. If You Have Come Across A Great Business Opportunity
Sometimes a once-in-a-lifetime opportunity can fall in your lap and you can’t just pass it up. You may find an amazing deal on an expanded retail store or find a bulk of inventory at a discount. Now and then, we come across such opportunities but sometimes you may not have the capital readily available. In such cases, you should determine the return from the investment on the opportunity, weigh the cost of the loan, and the revenue you can generate from the opportunity.
And if the return on the investment is higher than the cost of the loan then you should go for the loan. But you need to be careful with your calculations and never underestimate the costs or overestimate the profits as a result of over-enthusiasm or human error.