A business loan is a wonderful financial tool that brings new life into a business. But every business owner must be cautious while taking a business loan. You must weigh the purpose and the profitability of the loan. This juxtaposed against business requirements and costs will help you reach a decision. Take a look at this article if you are considering taking a loan. It will help you recognize the situations where you may need a business loan.
1. To expand your office or buy equipment
You may have started your business on a small scale, but now it is growing. As a result, you have hired more people and more customers visit you. Your office equipment has doubled too. The garage space is just not enough anymore. In such a situation, you may need to take a business loan to fund your migration to a larger office space. A larger space will accommodate more people and grow your business.
In addition to moving to a new office, you may want to buy extra equipment too. Let us look at an example. Umesh started a small call centre. He had five employees. Everyone got a laptop and a phone. His business was doing well and he had many new clients. As a result, Umesh needed to expand his business. He would need to hire many more workers who would need their own set of laptops and phones. This situation is ideal for Umesh to take a business loan and get all the required equipment.
2. For timely payments
How does money flow in your business? You get a payment for your goods and services first, and then you pay salaries and other bills? Or do you schedule different payments on certain fixed days of the month, and hope you get the revenues credited on time? All this matters in every business. If the cash does not flow in the same cycle from your clients and to your suppliers, then you could be in a soup. Your suppliers or employees may refuse to work next month. This is why a business may be profitable, but still face monetary problems. A business loan, in such circumstances, can help you make timely payments.
3. To stock up on inventory
Some businesses are seasonal. For instance, festival season will increase your sales if you have a garments business. So, you will need to stock up on your inventory beforehand. This will ensure that your business does not suffer when the demand is at its highest. Taking a business loan to make all the necessary provisions is a good idea. It can be a gamble to invest your loan amount in the inventory and wait for the profits to come in later on. But you have to take this risk based on the past performance of your business at similar times.
4. For support during a trying phase
An unexpected heavy loss or the arrival of a rival firm could have an adverse effect on your business. Then, you may need to apply for a business loan to stay afloat. At times, financial help is needed to pump new life into a collapsing business. Take a loan if you find yourself in such a situation. But borrow only the smallest amount required. Monetary stress may make it difficult for you to repay the loan if it is too large.
5. To build up a credit history
This is a strategic loan-taking situation. At times, small, inexperienced businesses do not get loans. This is because of either poor or non-existent credit history. A good credit history builds up when you pay off your loans on time. So, you should build up your credit history to stay assured of getting a loan when you need it in future. You can do this by taking a small business loan and paying it off in earnest. This will reflect well on your credit history, making it easier for you to get a larger loan in future.
Listed above are the ideal situations for opting for a business loan. If you find yourself in any such situation, consider taking a loan. But always remember to repay your EMIs on time and also to borrow only as much as you need.