Many entrepreneurs understand the importance of acquiring business loans as startup capital. Launching a business takes quite a bit of money, and most entrepreneurs cannot amass all they need through bootstrapping, investments and grants. However, once a business is up and running, it continues to need infusions of cash, especially in the early years when a company typically hopscotches between red and black.
Business loans can be exceedingly useful throughout the lifespan of an organization. Here are a few good reasons entrepreneurs might continue to pursue business loans as their business grows:
You Want to Expand
Specifically, when a business needs to expand physically, a business loan can be an invaluable tool. In well-run organizations, all of a business’s cash flow is properly allocated to ensure efficiency in operations and growth, which means that there might not be enough budget left over to allow the business to move to a new location, to open a new location or to acquire more space in their current location. A business loan allows an organization to obtain the space it needs to continue growing and thriving.
Before applying for a loan in this case, leaders may want to measure the potential change in revenue that would result from the physical expansion. Then, they have a better sense of the loan costs they will be able to cover into the future.
You Need to Build Credit
Many entrepreneurs have dreams of major expansions at some point in their business’s future, but those expansions require their organization to have impeccable credit to woo lenders into offering large loan amounts. One of the best ways to improve business credit is through demonstrating a habit of paying off smaller, shorter-term loans over time. Younger businesses especially need to engage in credit-building activities if they want any hope of qualifying for larger loans in the future.
What’s more, acquiring smaller business loans is a good way to build a relationship with a particular lender. Then, when a larger loan is necessary, the lender has a greater understanding of business operations and leadership, which might positively influence them in their decision-making processes.
You Require More Equipment
Many business operations require expensive equipment. While small businesses can rent some equipment, it can be more economical to purchase equipment that the organization will utilize into the future. Business leaders should compare the costs of the equipment with the amount of time it will be in use. If acquiring the equipment is better for business, they might apply for equipment financing, which is a type of loan that uses the equipment itself as collateral.
You Need More Inventory
One of the most significant expenses for any business, inventory is nonetheless indispensable. Many organizations must operate with seasonal rises and falls in demand, which can make it difficult to acquire an appropriate amount of inventory. Still, businesses need to have sufficient supply to ensure growth and success, so it might be necessary for business leaders to take out seasonal loans to keep their inventory well-stocked with high-quality and plentiful options. The longer a business operates, the more accurately leaders will be able to predict projected sales during seasonal spikes, but even young businesses should be conservative in their estimates to avoid borrowing more money and acquiring more inventory than necessary.
You Identify an Opportunity
It takes money to make money, as every good entrepreneur knows. Every so often, a good business leader will recognize an opportunity to provide their organization with outstanding growth, but to capitalize on that opportunity takes more financial power than the business currently has available. It is imperative that business leaders thoroughly investigate such opportunities before taking any action, but if an opportunity is deemed worth pursuing, a business loan can be essential in allowing a business to capitalize on an opportunity and gain access to an outstanding return on investment.
You Need New Talent
Organizations live and die by the quality of talent supporting them. As a business grows, leaders should prioritize attracting the best possible talent available — which means offering advantageous compensation packages to attract the most experienced, most innovative and most passionate workers in the field. Though business leaders should work toward cultivating a corporate culture that brings in top talent, business loans might help small and young organizations pay some of the best employees what they are worth, bringing them on board and keeping them connected until they are emotionally invested in a business’s success. Business leaders should remember to consider business loans to help fund their projects and dreams — but they should only acquire loans when they are confident in their ability to pay them off.
