When you do not want to give away equity in the business, such as shares.
Loans do not require you to give up any shares in your company, and you can pay a loan off at a fixed cost over time. That allows you to plan ahead as well.
If you are just starting a business or wanting to expand an established one, you should avoid spending your own short-term profits to purchase long-term assets.
The ACCC reports that this is the most common cause of small business failure. A much better way to increase your profits is by using other people’s money.
It can be very difficult to get investors from the private sector, and you might need to sell shares of your company in order to attract the funding you need.
Different businesses have various attitudes towards loans, finance, or lending.
You might have successfully borrowed money in the past before reaching the position you are currently in. Or perhaps you feel like it is the time to borrow money. It might be risky for your company to take on a loan. However, it can be a risk that is worth taking sometimes.
When a loan is used for the right reasons and at the right time, it can allow you to take your business up to the next level. Some of the most common reasons business owners consider taking out a business loan include:
It isn’t a lack of profit sometimes, but cashflow that can take a small business down. If a lack of money could end up putting you out of business, take out a loan to cover any shortfall.
At some point, almost every business needs new gear, stock, or equipment. Sometimes the only way that you can increase your profitability or productivity is by having more efficient and newer technology. Whether you are a service business or a manufacturer, the equipment you are using now will almost definitely be different than what you use in a couple of years.
A new opportunity will sometimes come along that you are surprised by. A new market might open up, you may form a new business relationship, or discover a new way that you need to move quickly. When an opportunity comes knocking, a loan can help you take full advantage of it.
A majority of business owners agree that their greatest asset is their employees. And it can be difficult to find good employees and retain them. Don’t lose your very best people because you are unable to afford to keep them. This could turn into a very important investment walking out of your building.
When you borrow well that can open up the possibility of getting bigger loans later on. If you prove you are able to pay off your loan – even a fairly small one – it can help to improve your credit rating. In a couple of years, you may want to borrow much more. It can be more difficult to secure a loan without having a good repayment record as part of your history.
Your business might have outgrown its original office, shop, or site. Or your current location might work well but it is time for you to expand into a second or even third location.
Tammy Richards is a seasoned finance writer with over 15 years of experience in the industry. With a keen eye for detail and a passion for helping people make smart money decisions, Tammy has become a trusted voice in the world of personal finance. Holding an MBA and drawing from her extensive entrepreneurial background, she offers valuable insights and practical advice to her readers.
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