5 Smart Reasons to Get a Business Loan (Part One)
Written on the 17 January 2020 by Nathan Drew, Fox Finance Group
Picture this. You are sitting around at your monthly networking meeting and you throw out there that you are thinking about getting a business loan to expand your business.
What generally happens next? This sort of conversation opener can be met with all kinds of opinions, from the general naysayers and messages of caution from your peers.
Rarely will someone jump in to congratulate you for being bold and backing yourself into your new opportunity.
Why have some people's brains been wired to fear finance?
While it's true that a business loan is not the answer to every situation, that doesn't mean that good reasons don't exist. If your business is ready to take a leap, but you don't have the working capital to do so, here are five reasons you might consider applying for a business loan.
At Fox Finance Group we have literally helped hundreds of business owners grow their businesses to their full potential, and here are our Top 5 Smart Reasons behind getting a business loan.
1. You need new equipment for your business.
Purchasing new business equipment that can improve your business efficiency and profitability is a no brainer for financing. Your business requires certain machinery, IT equipment, IT Software or other business tools to make your product or deliver industry best practise. A business loan can help you get there quicker and realise that potential faster.
If you do not have, or don't want to put up personal security as collateral for the loan, keep in mind that if you have someone structure things right for you, the equipment itself can often serve as collateral / security for the loan. Could you get an Unsecured Business Loan instead of requiring security?
Important Point: Before you take out an equipment loan, make sure you're separating the must haves from the nice to haves when it comes to your bottom line.
2. You're building credit for the future.
If you have big plans for the future, but your business hasn't previously applied for or paid off many business loans, you may want to consider not making your first business loan application the one you require for the large-scale purchase or expansion. Our experience tells us that Banks prefer to see a solid track record of successfully completed business loans before they will look to extend on the next larger-scale business loan. If you're planning to apply for larger-scale financing for your business in the next few years, the case can be made for starting with a smaller, short-term loan in order to build your business credit.
New businesses (or tadpole businesses as some lenders refer) can often find it more difficult to qualifying for larger loans if both the business and the business owners don't have a strong credit history to report. Taking out a smaller loan and making regular on-time payments will build your business's credit for the future.
Important Point: Taking this approach may also help you build a relationship with a specific lender, giving you a great credit history and a connection to go back to when you're ready for that bigger loan.
3. You've outgrown your current location.
Your office is busting at the seams, and you have no more walls to knock down to create more work spaces. If this is you, it sounds like things are really on the up and up and you've outgrown your location. Maybe you run a restaurant or retail store, and you have more customers than you can fit inside your business at one time.
The likely meaning behind this is that business is booming, and you're ready to expand. But just because your business is ready for expansion, doesn't mean you have the cash on hand to make it happen. This could mean a total new address change for your business, or in some cases you may be able to expand within the same building by taking on the lease next door.
Whether it's adding an additional location or picking up and moving, the up-front cost and change in overhead will be significant. The world of small business loans has changed dramatically over the past 5 years, (in a good way) and there are so many more options now available, if you know where to look. There are both secured and unsecured business loan options to cater for a wide range of industries. The key is to know and understand your credit score and business cashflow.
Before you commit, take steps to measure the potential change in revenue that could come from expanding your space. Could you cover your loan costs and still make a profit, or will you grow and make the same or less profit?
Important Point: Revenue is Vanity, but Profit is Sanity!
Learn more about the Author Nathan Drew.
Part Two of this article will be posted next week. Stay tuned!!
Author:Nathan Drew, Fox Finance Group
About: Managing Director - Fox Finance GroupConnect via:LinkedIn