Business loans are not always a sign of mismanaged finances. If you are thinking about your spending and are doing it for the right cause, there really is no reason to shy away from taking out a loan. A lot of successful companies owe a great part of their success to sensible business owners making informed decisions about borrowing from trustworthy financial institutions.
Going into business entails a certain amount of risk. All it takes for your ensured success is to take the ones that offer solutions tailored to your specific needs.
Here are some of the top five signs that it is right about time for you to consider outside business funding.
You Are Considering Expansion
Whether you need new seats, tables, various types of equipment, space renovations, advertising, or an entirely new location to keep up with the growing demands of your business, getting a loan to help cover the expenses makes total sense.
You are most probably thinking of expansion because business is booming, and you want to ride that wave while it lasts. Taking a loan will help safeguard the continued growth of your business.
Upfront costs for startups can be extremely expensive, and a term loan is especially useful to finance your expansion efforts. But before you completely commit to it, ensure that you won’t end up being buried in debt that you will be unable to pay in a timely manner.
As a general rule, you must still be able to cover the amount of your loan and make a reasonable profit after that.
Major business expansion decisions like moving to a bigger location, introducing a new product line, or diversifying your investments must be researched carefully. Do your homework by doing a revenue forecast. Hit your books and see how your loan would impact your entire business bottom line.
You Have Plans of Building Credit for Your Business’s Forthcoming Needs
Maybe you are planning way ahead, and have the foresight to plan for bigger business financing options as your company expands in the coming years. If this is something you are considering, you can start with a smaller loan that you could pay in full and in time, so you could up your credit score.
This is an especially useful tip for fairly new businesses that do not qualify for bigger loans as of yet. Businesses and its owners who do not have a strong credit history typically encounter difficulty when it comes to meeting qualifications for larger financing options.
Remember to borrow only the amount you could afford to great working relationships with reputable lending companies. Making timely payments are essential because even a single late payment on a small loan you made could greatly decrease your chances of being qualified for better financing in the future.
When You Are Required to Hire New Team Members
Younger businesses in the start-up phase are usually just composed of only a few key individuals who multitask to stretch resources in the early stages. After some time in the game, the need for expanding the team to cater to more customers becomes vital to bigger business operations.
Your employees need to develop a specialization in the long run and stick to tasks that are tailored to their skills and capabilities. This ensures that the quality of work from each team member remains at an optimum level, which in turn, also increases your operational efficiency.
Focus on getting individuals with the right attitude and skillsets for your industry. Prioritize those whom you feel have the potential to grow with the company. Having a great team behind you will enable you to have more time and energy to focus on growing your company to grade-A status.
You See the Need to Increase Your Cash Flow for Working Capital
Requiring additional financing until your profit margin becomes satisfactory enough to cover operational expenses is another reason to get a business loan.
Taking out a loan from a lender with fair policies will work for supplementing your immediate need for working capital to manage your everyday operations. Business loans for additional working capital are particularly suited for new companies, as well as for entrepreneurs who are in a temporary financial bind. This will allow your company to pay running expenses on time. Some of these business costs include expenses such as payment for restocking inventory to serve your growing clientele, various invoices, as well as overhead costs.
If a business has a considerable amount of working capital, it will surely have a higher potential for making practical investments to promote growth over time. A word of caution for entrepreneurs who are thinking of getting a loan for this reason—again, perform due diligence to ensure that your current assets are worth more than any outstanding liabilities. Mull it over carefully to avoid getting deep into debt, or worse, closing shop altogether due to bankruptcy.
Your Company Is Presented with a Great Deal or a Break That Outweighs Probable Debt
Maybe one of your suppliers is holding a big, end-of-season sale, and you can order inventory in huge volumes at an awesome discount. Perhaps you know of a training seminar or series of workshops for your employees that could potentially increase their skill level or efficiency.
The key to making a business loan work for this purpose is to evaluate the total loan cost, versus the revenue generated from the loan—in short, figuring out your return of investment (ROI). In this case, doing a revenue forecast will help you weigh your options.
Make an organized list of pros and cons before proceeding to borrow from a lender. Researching and studying your assets, liabilities, as well as growth opportunities are vital to ensure that you are making the right decision. Moreover, if your company is going through a rough patch and needs to pay a debt to settle a lawsuit, apply for a loan. This way, you save your business capital and pay your debt. These loans are known as settlement funding, specifically designed for these kinds of situations. Once you’ve paid the lawsuit debt with loan money, you can quickly get back to the more essential functions of your business that can further help expand your business
By doing so, you can make a detailed plan on how to approach your investment strategies. If you see a great business opportunity in the horizon, it could definitely be advantageous to get business funding through a loan that would work for your unique financial situation.
About the Author
Barbara Davidson is a writer for Business Backer. She is an expert in venture capital and business funding.