5 Smart Reasons to Get a Business Loan (Part Two)

Written on the 19 January 2020 by Nathan Drew, Fox Finance Group

In our Part One of 5 Smart Reasons to Get a Business Loan we touched on the first 3 Reasons why you would look at a business loan as a viable option when wanting to take the next step in your business.

These were:

1. You need equipment for your business.
2. You're building credit for the future.
3. You're ready to expand your physical location.

4. You've found a business opportunity that outweighs the potential debt.

Every now and then, an opportunity falls into your lap that is just too good to pass up, or at least have a crack at.

Another example that we commonly see is when a business wins a commercial contract, but it doesn't have the equipment to complete the work required. A recent example was that the business won a $30,000 contract. The cost to purchase the necessary equipment to complete the contract was about $8,000. In this example, the factors to consider were relatively simple. If you took out a two-year loan on the equipment, paying a total of $1,000 in interest, (interest rate used in this example is approximately 8% p.a.) your profit for that contract would be $21,000.

The good news is that at the end of this loan term you still hold the business asset which could allow you to replicate this profit again debt free with another future contract win.

Important Point: Ensure you seek out the right qualified advice to ensure that you are able to do the number crunching accurately.

5. You want to purchase more inventory.

Inventory is one of the top expenses for most businesses, along-side wages. With inventory, there is added pressure keeping up with the demand by replenishing your inventory with the latest high-quality options with the very latest eye-catching packaging.

This can prove difficult at times when you need to purchase large amounts of inventory before seeing a return on the investment. We see this a lot in seasonal businesses, there are times when you may need to purchase a large amount of inventory without the cash on hand to do so. Slow seasons precede holiday seasons or tourist seasons, necessitating a cashflow boost in the business to purchase the inventory before making a profit from selling it.

In order to measure whether this would be a wise financial move for your business, you could create a sales projection based on past years' sales around that same time. Once you have calculated the cost of the debt and compare that number to your total projected sales you can easily determine whether taking an inventory business loan is a wise financial move.

If the potential return on investment outweighs the debt, why wouldn't you go for it?

There comes a time whereby it becomes critical that you accurately calculate the expense versus reward before jumping into an opportunity to grow your business using a well-structured business loan. More than one entrepreneur has been found guilty of underestimating the true costs or overestimating profits as a product of over-enthusiasm. When you're weighing the pros and cons, it often helps to perform a revenue forecast to make sure you're basing your decisions on hard numbers rather than your gut instinct.

This is something that a trusted business advisor could help you with. Do you have a Financial Planner or Business Lending Specialist in your corner to help with these calculations? If not, speak with the team at Fox Finance Group to learn how we can help you take your business to the next level.

If any of what you have read has raised some questions for you, feel free to drop me an email with your question and I'll come back to you with my thoughts. My email address is nathan@foxfinancegroup.com.au.

I look forward to hearing from you.

About the Author

Nathan Drew has a passion for growing businesses. For many years he has played a role in helping businesses across a wide range of industries reach their full potential.

"It took me a while to work out what I wanted to do in life, said Nathan. I knew that I loved building things, but I was no good with using my hands, so it felt natural for me to turn to using my brain and knowledge to build businesses. This is where my thirst for knowledge around finance, sales, systems and management came to the fore."

As the CEO of Fox Finance Group, Nathan is constantly driving the strategic direction of the business across all of its Divisions which includes Vehicle & Equipment Lending, Personal Lending, Home Loans, Business & Commercial Finance and Financial Planning.

"Across our different Divisions, we have the expertise to help every business, large or small, achieve great things with a well-planned out and structured use of business funding, says Nathan."

Professionally connect with Nathan on LinkedIn: https://www.linkedin.com/in/nathan-drew-profile/

Learn more about the Author Nathan Drew.