Starting your own business is a large risk. There are many pitfalls that new business owners will have to face in their start-up phase and one of the most common problems that entrepreneurs have to deal with is sourcing funding to grow their business without impacting their current financial position.
If you have just started your company, then acquiring a small business loan may give you the financial support you need to keep growing and stay profitable in a competitive business environment. Here are five reasons why your small business could benefit from a loan.
#1 Working Capital
Do you have customers that are slow to pay you? What do you do to cover your cash flow needs if your inventory needs restocking? In the case of this stock issue where one product line may be selling out faster than others, creditors usually will demand payment before you can place a new order for the fast selling products. A loan can help you settle your account and place a new order to replenish the stock without negatively impacting your cash flow.
#2 Cover Cash Flow
Many startup businesses have problems with effectively and efficiently managing their cash flow. In fact; cash flow problems are the number one reason for startup failures in the first year of business operations. Keeping money available for inventory issues like we discussed, as well as other unforeseen expenses in business operations, is critical.
A small business loan has a quick application process, and you will be able to have access to the funds immediately after the deal is approved. The rapid approval process and ease of access to the loan let you keep your free cash flow under control and avoid a crisis.
#3 New Opportunities
The world of small business is a fluid, constantly evolving environment where entrepreneur’s need to be able to make decisions quickly. You may discover opportunities to help your business grow that require immediate access to capital. In this case, checking with your accountant and applying for funding with traditional institutions is not possible, so you may have to pass on the deal. However, with a small business loan, you can take advantage of the growth opportunity without impacting your cash flow, or wait for a lengthy approval process for the funds to clear.
#4 Leverage Large Loans
Small businesses start out with no credit score, so you may find it a near impossibility to secure a loan from a large financial institution, without offering collateral to cover the risk. However, a small business loan does not require the same stringent collateral or surety requirements, and they help to build your credit profile as you pay them off. After paying off your first loan, check your credit profile and if it has improved, then consider going for institutional finance if your business still requires it to grow.
#5 Purchase Equipment
Does your business need to buy a new machine? Trying to scratch together the financial resources to expand your plant and equipment by taking from your operational budget will put the financial health of your business under stress. However, with a small business loan, you can take care of equipment breakdowns immediately, as well as purchase any new equipment that your company may need to expand operations.
Don’t take a Loan if Your Business is Failing
If you find your business is struggling in any of these five areas, then the chances are that a loan could greatly benefit your business and keep operations moving while increasing your free cash flow. However, if your business is experiencing financial hardship and stress, then a loan will not save you from failure. Make sure that you do not ever take on any financial commitment that you cannot afford to pay back; the result could cost you your business. Instead of taking on more debt, rather speak to your accountant and lawyer and try to figure out a way to refinance, or close the doors and liquidate.
Work with a Credible Lender
There are many fly-by-night and predatory lenders that offer ridiculous terms on their loans. Make sure you work with an industry regulated financial provider that has a solid code of ethics. Visit the team at smallbusinessloans.co and speak to one of their professional consultants about a loan for your small business today.