5 Ways Successful Companies Can Benefit from a Loan
A good loan can be a lifesaver, helping your business get out of a tight spot and back on its feet. But if your company is running smoothly and successfully there’s no good reason to take out a loan, right? Not so fast, because taking out a loan can actually be a great choice for companies who are in good shape financially.
From keeping up with your seasonal payroll increase to getting money to grow your business, there are a lot of good reasons to get financing. I’ve accumulated the five best reasons why successful businesses should still consider taking out loans, which are:
- To Make Large Purchases
Sometimes your business will need to make a significant purchase, like expensive manufacturing equipment. Big purchases like these take a chunk out of your business’s cash flow and can make keeping up on operating expenses a tight squeeze.
Using a loan to pay for large once-in-a-while expenses will keep them from taking a big bite out of your capital or interrupting your business’s flow of operation by spreading the cost throughout a series of payments that are a lot easier to manage. Preventing large purchases from becoming a financial burden will negate the cost of interest in the long term, especially as you put new equipment or vehicles to work.
- To Keep Up on Seasonal Cash Flow
Many companies gain the bulk of their income during a few months of the year. Seasonal businesses like these have to spread out the revenue brought in during their busy season to maintain their operation through slower months. If your company has slow periods like these, a loan help you keep up on operating expenses. You can also use your extra capital to stock up on inventory and prepare a strong marketing campaign so that you can make the most of the busy season when it arrives.
Line of credit products, which give you access to a specific amount of funds allow you to withdraw funds, as needed over a period of time. These are a great fit for seasonal businesses needing to ramp up for their busy season every year.
- To Provide a Financial Safety Net
Most small businesses manage a tight budget, which makes it easier for unforeseen circumstances to throw their cash flow out of balance. A large unexpected expense, or a slow business period, can throw your company out of the loop and make it hard to get back on your feet. In order to avoid unpleasant surprises, it’s a good idea for businesses to have six to twelve months worth of cash in the bank in case of emergencies.
You can use traditional loans or, preferably lines of credit, to help pay for everyday expenses like paychecks and bills in order to make sure your business has enough capital to keep its financial safety net in place. Or you can use this financing option as your backup plan until you can save your emergency fund.
- To Build Credit
A good credit score doesn’t just help you qualify for loans. Companies outside of traditional lenders and credit card providers will sometimes use your credit as a factor when deciding whether or not to enter into a partnership with you. When your company is running well, it may be a good idea to take out a loan you don’t need otherwise for the purpose of building up your credit score.
Paying back a loan in full, and making every payment on time, will improve your credit score. You can consider it an investment or even part of the financial safety net we mentioned. With a better credit score you’ll be able to choose from wider variety of loans with lower APR if you ever need them in the future.
- To Expand
If your company is successful enough that there’s no obvious reason to take out a loan, that may mean it’s time to expand. Loans can help cover the costs of extending inventory and opening or moving to a new location so you can focus on what’s most important: your business. Expanding is a big endeavour, and you need to be focused on that goal to make sure it’s successful.
If you’re expanding your business you’ll most likely need new personnel, more office space, and possibly more equipment. You can use the capital from your loan to bring on new hirees and invest in your company’s success by making sure your employees are well trained, have a positive environment to work in, and have all the resources they need to build your business.
How to Pick the Right Loan
Every business is different and has different needs. There are a lot of loan providers and types of financing solutions out there, so it pays to do research. Whatever your reasons for getting a loan, you should look at the math before you commit. It’s important to make sure the financing partnership you’re entering into is going to be in your company’s best interests.
SBA loans are popular option for companies who are at least somewhat established and successful. They typically have the best loan rates with the longest repayment terms available to small businesses. SBA 7a loans can be used for financing of up to $5 million for either working capital or commercial real estate.
SmartBiz Loans is a great option for anyone interested in an SBA loan because of how committed they are to making the process quick, easy, and painless. You can start preparing to get an SBA loan right now by going through an SBA loan checklist about how to apply. This will ensure you’re prepared for the process of getting a loan through SmartBiz.
About the Author
Davis Pratt is a Writer for Smart Business Hacks, an online publication devoted to being the user manual of small businesses. They focus on helping entrepreneurs and small business owners start and grow their business by answering complex problems and providing easy solutions.
Do you need extra funds for your small business? An SBA loan is the best bet for small businesses with low rates, long terms and low monthly payments. Visit SmartBiz Loans® today and discover in about five minutes if you’re qualified to apply for an SBA loan with one of our bank partners. Use the promo code “blog” and receive $500 off of your closing costs.