Business loans are used to beef up working capital, hire new talents, purchase new equipment and inventory, and even refinance existing loans to reduce the interest rates and ultimately the monthly cost.
Below is the list of reasons why you need business loans, which can improve your operational efficiency and ultimately your profitability.
1. You’re in the Startup Stage
The vast majority of startups need business loans to get off the ground. In fact, budding entrepreneurs rarely self-fund entirely, and so they seek some type of external funding, which can take many forms including business loans, equity investment, lines of credit, funding grants, crowdfunding, and loans from family and friend.
Lenders who provide startup funding will typically ask for your credit history, your business plans, and ultimately your ability to pay back the loan.
2. You Need Additional Working Capital
Some industries are susceptible to fluctuating working capital, which is defined as the ratio between the short-term assets and short-term debt. It should be sufficient enough to cover your current liabilities to maintain your company’s operational efficiency.
But during the off-season, economic downturn, business expansion, and other similar events, your working capital might temporarily drop. For many SMEs, particularly those without buffer funds, they need external financing to help keep them afloat until they sort out their finances.
3. You Need Large Inventories
Large inventories during peak seasons are common in industries that involve food distribution, electronic devices, consumer goods, and e-commerce. Not having enough inventory, which boils down to one’s inability to forecast fluctuating demand levels, can cause huge financial setbacks and inconvenience.
Seasonal businesses are sometimes strapped with cash during slow seasons, which precede peak season (holiday seasons, summer vacations, local events, etc.). Business loans will help them purchase large inventories before the “big event” and grab the opportunity while the customers are less restrained in spending.
4. You Need to Restructure Your Debt
Sometimes, you take a bridge loan (or short-term loan) to keep your company afloat while you seek for business loans that come with more favorable terms—i.e., lower interest rates and longer payment schedule.
Business loans can also help you restructure your company’s debt by consolidating all your financial obligations. This, of course, can make your finances easier to manage since the number of monthly payments is reduced.
And lastly, debt refinancing through commercial loans can free up more cash in your business, allowing you to improve your working capital, expand your operation, and ultimately improve your profitability.
5. Your Goal Is to Expand Your Business
Business expansion often entails external funding from commercial loans, allowing you take advantage of new opportunities. While you may use your cash flow, this may not always be an ideal route because doing so may affect your operations, productivity, and/or quality of your service or product (after all, something has to give, right?).
But before you take on a business loan, measure the potential increase in your revenue (and profit) and see if it justifies the risks that come with expansion. Furthermore, make sure that your new location or branch will help you reach your target market.
6. You Need New Equipment or Replacement
If you need new equipment or your machinery requires replacement, business loans can cover the cost. Meanwhile, many lenders that provide equipment financing allow the actual equipment to be used as a collateral.
7. You Need to Hire New Talents
Hiring staff is one of the largest investments you’ll ever make. In fact, the right people can help you execute your goals and ultimately find huge success. But unfortunately, many entrepreneurs commit the mistake of penny-pinching when hiring staff, which results in high turnover rate, poor-quality talents, and other costly blunders.
Offering attractive salaries and incentives is one of the keys to attract, retain, and motivate high-quality talents. Hence, many startups and SMEs get business loans to make this critical investment move.
And with the right talents, you can focus more on the core operations (and most critical tasks) of your business.
8. You’re Building a Strong Credit History
If you’re planning to expand your business, which of course requires large-scale financing, it makes sense to plan ahead by starting with smaller and/or shorter term loans so you can build a good credit history. Traditional lenders often require borrowers asking for large commercial loans to carry a good credit history so they can prove their ability to settle their debts promptly. If you lack a credit history, you may not qualify for larger business loans and might be forced to settle to smaller amounts.
For more information about business loans, contact the experts at AS-IS Loans. We’ll work with you no matter what your credit score is. We don’t provide denials, only approvals. Call today!