What comes to your mind when you think of applying for a business loan? You probably think your business is in some kind of financial trouble, and while that may be true, it is not always the case. Loans get a bad rep; however, there are several reasons a business might need a loan that does not necessarily mean business failure. Small business owners are wary of loans, and we understand that it can be scary to take on debts, but there are times when it is imperative to do so.
Your small business needs help from time to time, and that could be injecting funds into the business to assist in certain areas. It is important to recognise when your business needs external financing to give you the time required to secure such funds. Business loans are available to help businesses grow and thrive, but they must be appropriately utilised. Small businesses should not view loans as a burden to explore at the very last minute in a bid to save their business. Proper planning and preparations need to be set up to utilise a loan effectively.
There are certain ways to know when your business might need a large influx of funds in the form of a loan. A business does not suddenly become in need of financing, it is a buildup that gradually happens, and there are signs that the owner can look out for. In this article, we’ll be highlighting four of these signs.
- You need to expand your business.
Expansion is one of the most common reasons small businesses take loans. It could be that your business needs more employees, office space, or even a bigger warehouse. Whatever the case may be, when business is booming, it comes with certain costs that you might not be equipped to carry on your own. Small businesses need to take advantage of loans to help their business grow without straining their operational funds. When your business has the opportunity to expand and gain an edge over competitors, unplanned and unprecedented expenses might arise, so business loans would come in handy in such situations.
2. Your cash flow is running thin.
Cash flow is vital to your business as that determines the liquidity position of your business. It simply means the net amount of cash and cash equivalents being transferred in and out of the business. Small businesses are largely dependent on their cash flow, and when it starts to run thin, that means your business is in crisis. A business needs to have enough available money to fund its operations, including staff, utilities, and inventory. A short-term or working capital loan provides the funds needed to keep your business afloat while profits are down. It allows your business to keep running so you can get new customers and generate revenue.
3. Your equipment can’t keep up with the demand.
Imagine refusing large orders because you do not have the adequate equipment to carry out efficient production. As a business grows, equipment and business tools would have to be improved upon to keep up with the demand. Using old or outdated tools in any aspect of your business would slow down productivity which can be detrimental to your small business. Loans are available to carry the cost of purchasing new equipment and updating business tools without breaking your budget. There are specific loans available to help small businesses, even just getting inventory to fulfil an unexpected order. A business loan would be a huge relief to your small business when it becomes a struggle to meet up with demands.
4. Your business overdraft is consistently high.
A business overdraft is a revolving loan with a credit limit and allows a business to draw on funds up to a pre-agreed credit limit. Having a high overdraft essentially means that your business uses funds over what is available in its account. The credit score of a business is important when it comes to accessing loans, and carrying a high overdraft can hurt the chances of that for your business. As a business owner, you might have to consider taking an alternative long-term loan to pay off your overdraft and build back a good credit score. Planning and budgeting are crucial for loan management, and your business needs a good history of repayment.
We need to rebrand loans as the good financing options they are. They have such great benefits to small businesses, and the fear around taking loans should be dispelled. Small business owners should conduct their research to figure out the best loans for their business. BizNurture has great loan options with considerate interest rates for small businesses to take advantage of. Visit www.biznurture.loan for more details and have a chat with us today.