While applying for a business loan is a standard business practice, taking more loans than you can handle is something that can run your business into the ground before you know it. Handling the interest rates alone can be troublesome from a purely financial standpoint, without even having to think about payment automation or manual tracking of all your payment deadlines.
On the other hand, avoiding loans altogether is an even worse idea, seeing as how most of the small businesses depend on this method in order to finance their further expansion or merely secure their survival. In other words, taking a business loan is not a bad thing if you have a good reason for it, and here are five such reasons.
Investing in your office
The lighting system of your office, its layout, the equipment you use and the ambiance in general will, sooner or later, require a facelift or even a full remodeling. When this moment finally arrives, it will be up to you to find the money to invest in your office. As we stated in the introduction, most businesses don’t have that much money lying around in their bank account in the beginning; in fact, it takes between 6 months and a year and a half for an average startup to become profitable. Even after it does become profitable, you can’t justify spending your entire reserve or dedicating your entire surplus to the office remodeling.
Instead, it’s probably for the best to simply look for a business loan and then make gradual payments. Still, just because you’re about to make separate payments doesn’t mean you should go lavish with your remodeling. Remember, overinvesting in your expansion is a trend that can potentially ruin your business.
There are so many reasons why a business needs a corporate vehicle; still, most first-time entrepreneurs struggle with differentiating between a situation in which it’s better to lease a car and the one in which buying is the preferable option. Since an owned car gets you tax benefits and you might get charged for the wear and tear, it might be preferable, and more reliable, to merely purchase a company vehicle. The greatest struggle here is your ability to make the down payment, which is what the business loan is for.
On the other hand, before you make up your mind whether to purchase or lease, you need to make several considerations. For instance, you need to know who exactly will drive the vehicle in question and what kind of mileage you can expect. At the very end, you need to ask yourself in what way the cost of maintenance affects your cash flow. Keep in mind that this will be combined with the interest rate in order to diminish your surplus by quite a bit.
Inventory and raw materials
While this is something that should be thought of in advance, you need to understand that a deficit in raw materials almost exclusively results in a halt of your operations. This kind of malpractice is something that small businesses seldom recover from, but, even worse, it has the power to stop your momentum, further diminishing your chance of success. For this, on the other hand, you don’t need a loan with special features or unusually low interest rates. What you need is something that doesn’t require much paperwork, something you can get approved for right away, as well as something you can pay off in no time. Some companies offer favorable online loans that you can pay back in 6 to 18 months.
Maintaining the cash flow
Barely maintaining enough money to pay your suppliers, your employees and your landlord aren’t enough for a rising business. What about bonuses, expansions and special offers – all those little things that a thriving business can’t do without. In order to grow your business, you need to maintain a healthy cash flow that you can, later on, redirect towards the area that requires it the most. If this problem appears to be systemic, you might want to apply for a loan right away and then use it to plug the leak. Either way, this is not something that can be handled without an investment.
Boosting your credit score
The last thing you need to understand is that there’s one good reason to apply for a loan even if you don’t actually need one at the moment. You see, by getting a smaller loan right away and paying it back in time, you will improve your credit score. Later on, this will make it much easier for you to get approved for a loan when you really need it. Sure, one may argue that this isn’t that common of a practice, seeing as how most first-time entrepreneurs are so preoccupied with sheer survival that they barely have the time or energy for this kind of proactive engagement. This, on the other hand, is what separates the best from the rest.
Any of the above-listed five reasons is good enough for you to consider getting a loan, yet, they are merely the tip of the iceberg. Equipment repair, a new digital marketing campaign and hiring new employees are also valid reasons for you to take this into consideration. This is just one of the hard choices you’ll have to make as an entrepreneur.