HOW A SMALL BUSINESS LOAN CAN UNLOCK YOUR BUSINESS GROWTH

There is a thought that business loans should only be taken when the profits are down and the business needs to survive. However, the truth is that a profitable business can benefit from taking a loan to unlock its full potential. Working capital is often the biggest constraint for small businesses that are going through a growth phase. Because of this, many profitable small businesses also face financial challenges, a gap that is mostly filled through personal capital. In such cases, opting for a small business loan can help your business grow without hindrances.

Various Sources of Small Business Loans

Business funding can be raised through multiple sources – financial institutions, angel investors, crowd funding, seed capital are some of the common ways for small businesses to raise capital. For raising money from the first two sources – one needs submit various documentation and prove their creditworthiness. Other sources focus on the growth aspect and returns that are bound to be generated.

Now let us look at how small business loans can help unlock the growth potential of your business.

How small business loans can help grow your business ?

Small businesses usually need funding to take on more work and help set up the required infrastructure for servicing more clients. This translates into more working capital rather than fixed capital. Here is how a small business loan can help while the business is in growth phase.

• Maintain a healthy Cash Flow

While you are working on servicing expanded clients and orders, you need to ensure payments to vendors and employees. At the same time, the incoming payments from clients can be staggered or delayed. This can leave the business in a credit crunch. In such a situation, business loans can be a great way to fund this lag and maintain credibility. Losing creditworthiness can have adverse effects on the credibility of the brand, in the market as well as among creditors. Going for a short term small business loan can provided the much needed capital relief.

• Hire New Talent

When in expansion mode, you will need better talent and more experienced resources who can drive the growth and deliver on the promises made to the customer. Moreover, good talent does not come cheap. In such a situation, you will need more capital to invest in your team as well ramp up your resources. This is where a small business loan can come in handy.   

• Expand or Update your Inventory

Taking more and bigger orders means buying and upgrading your machinery to churn out more products. Take, for example, a food production company that is growing at a fast pace. It gets a bulk order for its products from a supermarket brand. It order to increase its production five times, it will need to high-spec machinery, which will allow the orders to get completed within days instead of weeks. For all this to happen, without affecting the normal cash flow position, a business loan is the best way out. In this way, the business owner can continue to pay its other overheads without being hit by additional pressure and manage the growth stage.

• Tax benefits

Taking a business loan can also provide a small business owner with certain tax relief. The interest payment against the loan can be used as a tax shield. Business loans can help reduce the income and thus, help in reduction of the tax liability. You can use various types of loans – refinancing of spaces, equipment financing, and various others and use it a tax shield.

• Invest in Marketing to Expand your Business Prospects

Expansion of a business or creation of a brand requires solid marketing efforts. But such efforts are usually kept to the corner because of costs. A good marketing campaign requires a good budget as well as a good team to run it. Small businesses often ignore the benefits of marketing the brand because of the costs involved. However, if a business wants to expand, marketing is required to build customer awareness, traffic, and brand recall. A small business loan can give a business the financial band to invest in such marketing activities and achieve more growth.

Eligibility criteria for availing small business loans

Before applying, you need to understand the need of the loan.. To avail small business loans, the following conditions should be met –

1. The company should be doing business for three years.

2. The venture should be a profit-making one with the owner having a positive and high credit score.

3. The business needs to furnish past three years revenues and tax filings, audited financial statements. In addition, the KYC of directors and partners are required.

Key pointers to be kept in mind:

As a small business owner prepares for growth and business funding, here are a few steps that should be considered:

• A business owner should decide very carefully on which type of financing is right for the business. A consultation with a financial advisor is recommended and so is good research.

• It is a good idea to compare between the loan offers of 2-4 lenders. Any questions and doubts should be cleared with the organizations. All loan terms, conditions and repayment clauses should be clearly evaluated before finalizing the lender.

So, don’t wait - apply for the loan and get ready to grow your business!