Some people do not think twice before taking a loan as long as a lender is available even if it’s from a relative or a friend. Others fear loan, and even if they have a genuine reason to take a loan, they will avoid it like the plague. These two groups of people could be wrong in some circumstances. Taking a loan is not bad, but again, it is good to take a loan when it is necessary. The big question is, how do you identify a good reason to take a business loan? These are some of the questions some entrepreneurs have been asking themselves, and some end up succeeding using loan money while others fail terribly. At the end of the day, both parties have to pay the loan back to their respective lenders. Sometimes you might fail, not because it was a bad idea to take the loan but because your business didn’t work and it’s as simple as that.
One fact about business is that you will need money to make more money, and living a debt-free life can hinder growth for your business. Therefore, consider checking the following reasons to know whether you should take that business loan or not. The good thing is that there are numerous loan products for almost all business pursuits.
1. Funding Your Start-Up
Some people have very brilliant business ideas but do not have enough capital to implement it. Going for a loan to fund your new business is not a bad idea because every successful business today started from somewhere. If the owners of these businesses didn’t have money to fund their startups and never bothered to borrow, then these businesses would still be mere ideas. Few lenders in the industry are willing to lend money to fund new businesses, and all you need to do is look for one of these. However, make sure you have a good credit score and a detailed business plan for your startup, including expected cash flows.
2. Purchase Inventory
It is common for businesses to take a loan to purchase more stock for their businesses, whether it is raw materials or finished goods for resale. Having less inventory means that it will be difficult to meet customer demands, and unsatisfied customers will go looking for other sellers. Do not lose customers when you can apply for a loan to buy the things that your customers need in store. You can maintain a healthy level of inventory to avoid unnecessary stocking, but when demand increases for whatever reason, take a loan, and enjoy the sales.
3. Buying New Equipment
It does not matter whether it’s a new business, small, big, or already established business because you will need some equipment to operate efficiently. It can be as small as a point-of-sale machine, and if you do not have enough money to purchase now, taking a loan is one of the best solutions. It can also be a business vehicle or new production machine, and as long as it is a necessity in the business or will improve performance, do not hesitate to take a loan. You can either go for a cash loan and buy the equipment or consider equipment financing, which is a better option because you won’t need collateral for that loan.
4. To Cover Business Expenses
Even with an established business, it is possible to fall short of working capital and therefore the need a boost in the form of a loan. Working capital is the money you use to cover day-to-day expenses, and it is a very valid reason for you to go for a loan if you don’t have enough. Some of the reasons why you could have fallen short of this money are a delay of payments from debtors, sales fluctuations due to off-seasons or growth of your business. You can either go for a short-term or long-term loan depending on the reason why you are going for this kind of a loan. One thing for sure, almost all businesses find themselves needing this extra working capital at some point in their growth journey.
5. Buy Out A Partner
You could be having a business with other people, and sometimes it may not work with them. One of the solution to handle this is buying out the partner whom you can’t deal with anymore. Unfortunately, even if that partner has agreed to bought, you may not have the money to buy them out. This is a good reason to go for a business loan and buy that partner out.
6. Expansion Or Opening A New Branch
Every entrepreneur would be happy to see his business growing and even opening branches in other regions locally, nationally, or globally. Opening a new branch requires a lot of capital, and if you do not have enough for it, then a loan would help. You could be having an online business and decide to open a physical store for the same. This is also a form of expansion and a good investment. At the end of the day, the business is trying to increase its revenue and beat the competition in the industry. Taking a business loan will help you cover the expenses needed to open the new branch and stay relevant.
7. Settle Taxes
Sometimes it can be difficult to put enough money aside for tax purposes, especially when your business is still new and haven’t recovered your starting capital yet. Rather than facing the taxman empty handed or with empty explanations, it is better you take a loan and settle it slowly by slowly. IRS can be harsher to deal with than a lender. After all, you do not want to ruin your or business reputation when you are not able to pay your taxes.
8. For Hiring
That may sound illogical or unrealistic, but sometimes the cost of not having some talents in your business can be more dangerous than taking a loan to acquire them. It has always been said that employees are the best asset a business can have, and it is, therefore, important to ensure you have them and also make sure they are at their best. Having employees means you will incur expenses such as recruitment cost, payroll, training, and healthcare, among other benefits. If they will make a difference in your business and you have been holding the idea because you do not have enough money to pay them, then it is time you take that risk by taking a loan. All you need to consider is, are they worth the risk?
9. To Refinance Another Loan
This is another reason to take a loan, but it may sound strange. How do you take a loan to pay another loan? Two logic reasons for doing this could be the fact you want to consolidate all your loans into one loan or maybe because you have found a business loan with better rates or fees. As long as you can justify your reasons for settling one loan using another, then do not feel odd; it is normal. After all, everyone wants what is best for his or her business.
10. Build Credit
Most banks among other lenders will check your credit history, and while you can use your personal credit history to take a loan, it is good to build your business credit history also. It will help you to separate business and personal operations and also improve your chances to qualify for a business loan in the future. All you need to do is take a loan and use the money responsibly because at the end of the day the loan will need to be settled. If you do not settle the installments in time, sorry but you will ruin your credit history instead.
A business loan is one of the things that will help you as an entrepreneur to climb ladders that you never thought to come near. If one of the reasons you wanted to take a business loan is mentioned above, then go ahead and grab it. You are in the right direction.