In this article we will cover why you need loan for a business in USA, so You’ve probably heard the old adage that you have to spend money to make money, and it’s true. If you want your business to grow, you have to be able to invest in the expenses of growth, like equipment, advertising, and property.
Spreading the word that you’re considering a loan for your business can be met with all kinds of opinions. From general naysayers to cautionary anecdotes, everyone you meet will have a story as to what might happen if you take out a loan to start or expand your business venture.
The problem is that managing all those costs in addition to the expense of running your business can be tricky, and paying upfront for your business needs is often impossible until your business sees more growth. It’s a circular problem. You can’t grow unless you invest, but how can you invest in your business while keeping money in your business for operational costs?
Small business loans can provide you with funding to meet a variety of needs, from covering unexpected expenses to purchasing new equipment to funding large-scale expansion projects. There are different loan options you can choose from but they all have the same purpose: to help you achieve your financial goals.
The solution may be small business loan. While taking on debt can seem scary for small business owners, a loan can help you finance changes in your business that can result in a high return on your investment.
Here are the top 10 reasons to get business loan
To expand your business
Your cubicles are busting at the seams, and your new assistant had to set up shop in the kitchen. Sounds like you’ve outgrown your initial office location. Or maybe you run a restaurant or retail store, and you have more customers in and out than you can fit inside your space.
This is great news! It likely means 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.
Of course, further growth has many costs, such as advertising, new property, building renovations, and increasing staff sizes, and it’s unlikely you’ll have the cash on hand to cover it all unless you take it from the funds that keep your business operational.
To Replace or Upgrade Equipment
Young businesses can often have a hard time qualifying for larger loans if both the business and the 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. You typically have two choices when it comes to acquiring equipment: buying or leasing. Leasing may be preferable in some cases, but in others, it may be better to own your equipment outright.
If your business relies on specialized equipment, small business loans can help you replace it if it becomes outdated or purchase critical pieces of equipment you might be lacking. The IRS allows you to deduct the cost of equipment as a Section 179 expense. The Section 179 deduction limit is $1 million, with a phase-out limit of $2.5 million.
The problem is that you have to invest in the products you’ll carry before your customers can buy them and offset the cost. Once you’re operating, you’ll need to continually expand and replenish your inventory to keep up with demand and to provide better options to your customers. This expense is even more difficult when your business requires seasonal inventory, such as winter coats.
To Purchase Inventory
If you run a product-based business, inventory is a necessary expense. There may be times when you come across inventory at a discounted price or you need to bulk buy ahead of the busy season. In either case, a business loan can help you to keep your shelves stocked.
In that case, you might explore your options for taking out short-term loans. These are loans that are generally repaid in less than one year.4 To get approved for a short-term loan with your current bank, you may need to have a good banking relationship.
Making payments on time and holding a positive balance in a checking or savings account are both ways to build trust with a bank. Keep in mind that bank loans to purchase inventory are typically designed to be short-term in nature. So you’ll want to formulate a strategy for repaying them quickly, which may include using proceeds from seasonal revenues.
To recruit and hire new talented employees
When initiating a startup or running a minuscule business, the term ‘multitasking’ will take on a whole new meaning. You’ll reach a moment where you realize that expanding your website, dealing with customers, trying to put yourself on the map, all the while bookkeeping can become overwhelming. This’ll surely take a toll not only you -but the business.
If you or your employees are juggling too many things, it eliminates work quality and focus. A business model overhaul is definitely in order; investing in talented individuals will surely lead to an increase in revenue and more importantly, help to build the core foundations of your business. What’s more, is you’ll amass extra time to focus on the ‘bigger picture’ – that alone may be a solid reason to need business loan options, and there are plenty of them to be found.
For this type of financial need, a shorter-term loan might be more appropriate. If you’re hiring seasonal employees, for example, you could get a loan with a six-month term, then use the proceeds from seasonal sales to pay them off.
You could also use a small business loan to create incentives to help retain your staff. For example, you might borrow money to fund a company retreat that’s focused on improving training and facilitating communication, while also giving your employees a chance to relax. The payoff comes when those employees return to work energized, motivated, and committed to sticking with you for the long-term.
Cash flow is always a challenge for a small business, and it can continue to be a problem when you’re dealing with customers who don’t pay for services or when you have unsold inventory that needs to be moved to bring in new products. These issues are even more problematic when you factor in the regular costs of your inventory, staff, utilities, and rent or mortgage.
A short-term loan provides money to be used for your regular operational costs, and can help your business stay afloat when profits are low. By keeping money flowing through your business, you can continue to bring in new customers to drive revenue while making up for other losses.
Your business needs fresh talent.
When working at a startup or small business, you wear a lot of hats. But there comes a time when doing the bookkeeping, fundraising, marketing and customer service may start to wear on you — and your business. If your small team is doing too many things, something will eventually fall through the cracks and compromise your business model.
Some businesses choose to invest their money in their talent, believing that this is one way to keep their business competitive and innovative. This can be a great move, if there’s a clear connection between the hiring decision and an increase in revenue. But if having an extra set of hands around helps you focus on the big picture, that alone may be worth the loan cost.
Regardless of the exact reason you’re considering a business loan, the point is this: If, when all costs are factored in, taking out the loan is likely to improve your bottom line — go for it. If the connection between financing and a revenue increase is hazy, take a second look at whether taking out a loan is your best choice.
You want to be confident in your ability to pay back a business loan over time and to see your business succeed. Every business decision involves taking a risk. Ultimately, only you can decide whether that risk is worthwhile.
To move your business to a new location
Your business might’ve been doing well enough at your current location, but – as they say – the grass is always greener on the other side. The demographics of your original location may have shifted enough that there are better prospects elsewhere. Obviously, that comes with loads of expenses, including hiring movers, the cost of a new location, the paperwork entailed in the shift, and so on. That’s where business loans can truly come in handy.
To overcome upaid invoices
Different types of businesses come with different obstacles to overcome. For truckers, construction workers, manufacturers, and contractors, it’s fairly common to have slow-paying customers. Having too many unpaid invoices can create a drag on your business’s cash flow, which will also keep you from taking care of other important aspects of your business.
The solution is invoice factoring, whereby lenders front you approximately 80% of the value of your unpaid invoices and collect the funds from your customers on your behalf. After collecting, the lender then provides you with the remaining amount due, minus a percentage that they keep as compensation for the services they provided. Needless to say, you’ll want to develop your own strategies for dealing with unpaid invoices so that you don’t need to always turn to lenders for help.
To update and upgrade your business equipment
Keeping your business running at full capacity oftentimes relies heavily on having properly operating equipment. But, even if your machinery is working correctly, the rate at which it completes its task may be significantly slower than a newer model. Updating your equipment can make a crucial difference to your business’s cash flow.
The difficulty is that updated models of machines are constantly being produced – the air compressor you purchased a few short years ago may already be outdated. That can be extremely frustrating for the people whose income relies on the performance of business equipment. Who has money to buy new appliances every few months?
Fortunately for small business owners, purchasing equipment is not the only option. Consider the differences between equipment leasing and equipment loans so that you can make the right decision for the benefit of your business.
To Improve Terms on a Larger Loan
If you’re planning on needing a large loan in the future for business expansion or upgraded equipment, it may be smart to take out a smaller loan first, especially if your business doesn’t have a credit history.
The first loan you take out for your business will probably have less-than-ideal terms, because you haven’t built your credit yet, and high interest rates will hurt on bigger purchases that are essential to your business.
One strategy to ensure you get great terms on a large, vital loan is to get a small, easy-to-repay loan before you need a big one. When you pay off the small loan quickly, it may mean that you can strike a better deal when you need a larger loan in the future.
Consider using your first business loan for a small piece of equipment that would make life easier, but won’t break the budget. Then, when you need to purchase something big, you’ll have a strong credit history to help you qualify for better rates.
Of course, no small business should to take on debt that isn’t necessary, but there are times when a loan is the right decision to keep your business afloat or to improve the bottom line. Always weigh the cost and benefits of a loan, but if it has the potential to considerably grow your revenue, it might be time to look at your loan opportunities.
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