Spreading the word that you?re considering a loan for your business can be met with all kinds of opinions. From general naysayers to cautionary anecdotes, everyone you meet will have a story as to what might happen if you take out a loan to start or expand your business venture. While it?s true that not every reason is a good reason to go into debt for your business, that doesn?t mean that good reasons don?t exist.
You?re ready to expand your physical location
Your cubicles are busting at the seams, and your new assistant had to set up shop in the kitchen. Sounds like you?ve outgrown your initial office location. Or maybe you run a restaurant or retail store, and you have more customers in and out than you can fit inside your space. This is great news! It likely means business is booming, and you?re ready to expand. But just because your business is ready for expansion, doesn?t mean you have the cash on hand to make it happen.
In these cases, you may need a term loan to finance your big move. Whether it?s adding an additional location or picking up and moving, the up-front cost and change in overhead will be significant.
You?re building credit for the future
If you?re planning to apply for larger-scale financing for your business in the next few years, the case can be made for starting with a smaller,short-term loan in order to build your business credit. Young businesses can often have a hard time qualifying for larger loans if both the business and the owners don?t have a strong credit history to report. Taking out a smaller loan and making regular on-time payments will build your business?s credit for the future.
You need equipment for your business
Purchasing equipment that can improve your business offering is typically a no brainer for financing. You need certain machinery, IT equipment or other tools to make your product or perform your service, and you need a loan to finance that equipment.
You want to purchase more inventory
Inventory is one of the biggest expenses for any business. Similar to equipment purchases, you need to keep up with the demand by replenishing your inventory with plentiful and high-quality options. This can prove difficult at times when you need to purchase large amounts of inventory before seeing a return on the investment. Especially if you have a seasonal business, there are times when you may need to purchase a large amount of inventory without the cash on hand to do so. Slow seasons precede holiday seasons or tourist seasons — necessitating a loan to purchase the inventory before making a profit off it.
Regardless of the exact reason you?re considering a business loan, the point is this: If, when all costs are factored in, taking out the loan is likely to improve your bottom line — go for it. If the connection between financing and a revenue increase is hazy, take a second look at whether taking out a loan is your best choice.