Six reasons to get a business loan

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Date: 20 April 2020

Hand stacking coins on a table with shoots of growth

Businesses across the United Kingdom are facing financial uncertainty. Not for the first time, some will be looking for foreign finance in the form of a business loan. Since 2017, the volume of business loans increased by an average of 3% each year. As a result, the value of corporate lending is expected to increase to £430 billion in 2021.

What is a business loan? It is a loan primarily designed for commercial purposes. As with all loans, this includes the formation of a mortgage that must be repaid with interest.

You will have heard the old aphorism that you need to spend money to make money, which is quite right. If you want your company to expand, you will need to invest in your facilities, marketing and premises. Below are six reasons why your business may need a loan:

1. Expanding your business

Perhaps the most significant justification for seeking a small business loan is to invest in your business' growth potential. It will also be an opportunity for you to respond to market demand.

As businesses grow, they become more stable. A one-man-band with minimal sales is much less profitable than a company with several branches and thousands of staff.

Calculate the possible increase in sales that will occur as a result of your expansion plans. Will the sales cover the cost of the loan and still make a profit? By using your sales projections combined with the current balance sheet, you can see if your plans will make a positive impact on your bottom line.

2. Creating funds for the future

Applying for a business loan for funding is a vital part of the company's growth especially in the early growth phases before your investment is able to pay for itself. You can use a small short-term loan to build up your company equity.

Many small companies find it difficult to apply for substantial loans because they lack a good financial record. To access finance, you will need a good credit record in addition to evidence that you will be able to repay the loan. Taking out a smaller loan and making regular repayments when they become due will help shore up the company's credit record for the future.

Aside from that, it can also help you establish financial contacts that you can approach when you require a more significant loan.

3. Equipment to run your business

Before the coronavirus outbreak, most businesses were focussed on how they would grow their business rather than worrying about business survival. Investing in the right equipment was one way to grow a business. The efficiency savings alone often made investment in new equipment worthwhile - especially if the business had been operating for some time using old equipment

It only takes one mechanical breakdown to upset the whole apple cart. The costs to a business to have equipment out of action can be substantial and may even threaten the survival of the business. Minor breakdowns can also have a disproportionate impact. Faulty and defective machines may need to be continually patched to keep them operating. This can soon add up to a substantial amount wasted time and money.

4. Purchasing more inventory

Most businesspeople will agree that managing inventory is one of the most difficult aspects in terms of controlling costs. The dilemma is that you must purchase goods upfront before your customers can purchase them.

Inventory is often one of the most significant company expenditures, regardless of the size of sector. You should make sure your inventory is restocked with enough products of the right quantity and quality to meet demand. This can be challenging as you might need to buy considerable volumes in order to make a profit.

5. Improve and expand your marketing strategy

Marketing plays a very crucial role in determining the future of your company. Practical marketing skills can render small companies prosperous whilst poor marketing can ruin a company.

Marketing tactics are constantly evolving so keeping on top of developments is crucial and will benefit your company in the long term. Whether you are investing in training, sales and marketing software or technology or bringing in outside expertise, you will need capital, and this is where a business loan may come in.

6. Improve your business cash flow

According to a UK bank study, 80% of companies collapse because of poor cash management. Positive cash flow helps companies adapt to evolving dilemmas and make important decisions more quickly.

Trust in your cash flow simplifies decision making and makes essential transactions straightforward in the short term. Strong cash flow also provides a company with the stability and capacity to invest in production. This puts a business at an advantage as it allows the organization to invest in efficiency measures and work proactively, instead of reactively and aggressively.

Where obstacles stand in the way of the fulfilment of your company goals, you will need access to loans that will allow you to compete with your rivals and attract new clients that will improve your profits.

Takeaway

If you are consider borrowing money, you need to be vigilant. You might be putting your business or personal assets at risk. And throwing money at a venture that has no prospect of survival will be a futile exercise.

That said, getting a loan might be an ideal option if you don't want to go to the trouble of bringing shareholders or company partners on board. Furthermore, there are various loan options available in the market today that may help you finance your start-up or growing businesses.

You can also check out the loan offers at Credit Ninja and or other online lending agencies to learn more about the lending opportunities you can turn to when you need additional financial help.

Copyright 2020. Featured post made possible by Tiffany Wagner, Credit Ninja 

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