When running a small business, you definitely require cash supply or funds to cater for working capital, purchase of materials, business equipment, inventory, or to cover for operational expenses, just to mention a few. Thanks to commercial banks, credit societies, and other financial institutions, small business owners can get loans for their businesses and pay back later or at an agreed schedule with interest. However, you in most cases have to have a solid reason for applying for such a loan for your business. Additionally, a loan is a form of risk that you introduce to your enterprise once you decide to borrow. Among many others, here are 5 reasons why you need a small business loan as an entrepreneur.
You Have Inadequate Cash at Hand for Inventory
In a small business, one of the biggest expense hits on inventory. If you are operating a business that is seasonal in nature and you don’t have enough funds at hand to purchase inventory, you might need to approach a credit institution for a small business loan. A good example would be if you run a business that makes most of its sales and profits during a certain period of time or season. This would mean that you have to be adequately prepared in advance. In most cases, small business loans for inventory purchase are short-term, often paid off after the peak season. According to entrepreneur.com however, you need to be thorough on analysis and make sales projections wisely to determine the amount to borrow.
You Want To Build Credit
If you intend to expand your ventures in future, starting with a small business loan when your business is still young can be a wise decision. This way, you get to build credit, which opens the doors for you to qualify for a larger loan amount in future. However, you will need to be keen on your repayment schedule, ensuring that you make payments on-time without defaulting, since bank consider credit scores before making lending decisions. According to Meredith Wood, an EIC at Fundera, paying off smaller loans quick and well will allow you to cultivate relationships with lenders, and improve your chances of qualifying for a better deal as you get a credit history.
You Need More Working Capital
In other words, this is operational capital, precisely the cash flow you need to manage day-to-day business expenditure. Before small business gets to a stable point to manage their operational needs, business owners may borrow money for working capital. Working capital loans, in most cases are short-term loans , and may attract higher interest rates since they are considered high risk by most lending institutions, as explained by the best bankruptcy attorney in Atlanta, Georgia.
You Want To Expand Your Business
When you small business becomes successful and needs to expand to meets the demands of its clients as well as its own, an entrepreneur may have to approach a bank for expansion capital. Such a loan will cater for costs such as employee recruitment, real estate investment, advertising, and property renovation among others. A small business loan for expansion can help you business move to the next level, not to remain on the plateau phase of growth.
Other reasons to apply for a small business loan may include the need to purchase or repair business equipment and top-up or refinance of an existing loan.