If you talk to someone about getting a business loan, you are likely to get a wide range of opinions. Whether positive or negative, everyone you know will have an opinion on whether or not it is a good idea to obtain a loan to start or expand a business venture. The truth is, there are a number of situations when obtaining a business loan makes perfect sense.
Expand Physical Location
If you are maintaining an office without enough room for employees to work comfortably or own a restaurant that cannot sufficiently seat the customers who desire your food, it is time to expand. However, the fact that a business boom means you need a larger location does not guarantee you have the cash to pay for the expansion. It may be a good idea in this situation to finance your move or expansion. Before taking the plunge, be sure to estimate the added revenue you can expect from expanding to make sure you will be able to afford the additional debt.
If your long-term business goals will make it necessary for you to obtain a large loan sometime in the future, it might be a good idea to start with smaller loans and pay them down to build the creditworthiness of your business. It can be a challenge for young businesses to obtain large loans. But a little strategic planning will ensure your business credit will be sufficient by the time you are ready to put the funds you desire to use.
Your Business Needs Equipment
Purchasing equipment to improve the efficiency of your business is perhaps the number one reason business owners look for financing. It is often easier to finance equipment than to obtain cash for other purposes because the equipment can become the collateral for the loan. Before you commit to financing new equipment, be sure it is something your business actually needs and not just something you or your employees would like to have.
Your Business Needs More Inventory
Inventory is a major expense for any business. A business that does not keep up with inventory demands will not be able to meet the needs of their customers. Inventory management can be a problem for small business owners when it is necessary to make large purchases that will not provide revenue until some time later. A loan can be useful in this situation.
The Bottom Line
There are many different opinions regarding whether or not a business loan is a good idea for new and existing businesses. And while there are some situations when it may not be a good idea to obtain a loan for your business, the four situations above are perfect opportunities to use a loan to help grow your business.