You’ve probably heard it a million times – don’t ever, ever take out a loan because you never know whether you are going to be able to pay it back. If you can’t repay your loan, you will most certainly end up dealing with another heap of problems. A lot of people are eager to speak out against loans. From your family members and friends to general naysayers, everyone will have a story to share as to what might happen if you consider taking out a loan to start or expand your business.
It’s true that you shouldn’t rush into getting a loan for your business, but that doesn’t mean that good reasons for getting a loan don’t exist. After all, if you are a business owner, you are your own boss and you should be able to determine whether or not your business is ready to make a leap forward. However, a significant number of companies don’t have the working capital to do so, so they apply for small business loans. There are many reasons why you should get a business loan, but I’ll try to cover the basics and list just the most common ones.
The most obvious reason would definitely be purchasing equipment. Most businesses rely heavily on equipment: it doesn’t matter whether you’re printing shirts for local fairs or digging diamonds, you need gear to do it. Purchasing the right equipment, the one that can improve your business, is usually a no brainer as far as finances are concerned. In order for your product or services to be of the highest quality, you need the proper tools. That costs money, lots and lots of money.
The bottom line is that before you take out an equipment loan, you need to make sure you know the difference between what you need and what you want. I agree that many employees would love to have a plasma TV, a bar or a billiard table in their office, but unless you’re running a diner, those items shouldn’t be at the top of your priority list. What you should do is invest in equipment that will bring you more profit.
The second most popular reason to get a business loan is purchasing more inventory. Inventory is, without a doubt, one of the biggest expenses for any business. You need to keep up with the demand by replenishing your inventory with high-quality items and options. The problem is that it’s often quite difficult to purchase large amounts of inventory before you see a return on the investment.
This is especially true for seasonal businesses, where you often need to purchase a lot of inventory without the cash on hand to do so. It’s very simple – slow seasons precede holiday seasons or tourist seasons. You need to have your merchandise available for the beginning of the season, but since you don’t have any profit before the start of the season, you don’t have where to draw the funds from. This is where loans swoop in to save the day.
You are also ready for a loan if you notice that your cubicles are bursting at the seams, or if your new assistant had to set up shop in your kitchen, or when you start telling your workers to come in different shifts because you simply don’t have room for all of them at the same time. Or maybe you are the proud owner of a new restaurant or retail store and your space can’t handle the number of customers.
This is a good moment to consider getting a loan because it is apparent that your business is doing well, which also means that you will most likely be able to repay your loan.