It’s a simple, yet common thought. I want to grow my business bigger. Why? Bigger can be better, create more revenue, become a pillar in the community. Grow it larger to sell or because you are in business and that’s what businesspeople, entrepreneurs do, they start and grow businesses. And, at the beginning and at the end of the day, you need money to grow.
There are startup businesses that turn to investors or venture capital to raise millions for business seed money or expansion. Most of the businesses in our towns or cities are looking to add space or purchase equipment or even open a new location. If you are one of those businesses, business loans are more common than you might think.
Most small business owners don’t have enough personal savings to fund their business growth. Why should they when there are multiple ways to finance projects without having to access personal funds? A business loan can secure capital to grow your business. There are multiple small businesses applying for loans every day for just as many reasons.
13 REASONS YOU MIGHT WANT TO TAKE OUT A BUSINESS LOAN
WORKING CAPITAL. Money required for day-to-day business operations is a reason a business might need a loan.
EXPAND PRODUCTS/SERVICES. Increasing business revenues need to stay competitive by offering more products or services. Installment loans or another type of business loan can help make the investments to keep your offerings attractive and competitive.
STARTUP A BUSINESS. Have an idea for a brand-new business? A startup loan will lend you the capital to start up then open. Startup lenders will lend to brand-new businesses with no time in business. Others will want six months’ worth of revenue.
OPEN A NEW LOCATION. Expanding to a new location is a monumental undertaking requiring a lot of capital, but one that will bring returns on the investment. Generally, two years in business qualifies for a long-term business expansion loan with lower interest rates. Businesses purchasing real estate for a new location qualify for a commercial real estate mortgage/real estate SBA loan through the CDC/504 or 7(a) loan program. Online businesses that want to open a physical location can apply for a startup loan for your new brick and mortar location.
HIRE NEW TALENT. Taking out a loan to hire someone is a risk, but employees are a business’s greatest asset; so, if the employee has the talent and skill, they should make a return on investment in the loan.
PAY TAXES. Small businesses frequently take out loans to pay taxes when not enough funds have been set aside. A business loan or even a cash advance can be used to pay taxes.
REFINANCE ANOTHER LOAN. Debt refinancing is a reason to take out a business loan. Refinancing business debt with a loan that has better rates and fees, or consolidating multiple loans into one loan can save money.
BUY OUT A PARTNER. Some business partners end up not being the best choice. Because your partner agrees to be bought out doesn’t mean you have the money. If this is the case, you can get a business loan to execute a partner buyout. There is not really a specific type of loan for partner buyouts but there are standard business loans for this purpose, including an SBA standard 7(a) loan.
BUY ANOTHER BUSINESS. Business acquisition loans, or loans to buy a business, is another category of business loans. This kind of loan can expand your current business’s offerings with the purchase of another business or buy a business even if you don’t have an existing business.
CONSTRUCTION COSTS. If you want to expand or improve your business location with renovations or improvements or construct a new building for your business. Commercial real estate loan—also called a commercial mortgage or commercial construction loan—is the type of financing you need.
UNPAID INVOICES. Businesses with outstanding invoices can free up pending earnings with a loan called invoice factoring. The lender fronts you with the money your customers owe you, and then you repay them as the customers pay off their debts. With this type of financing, your business does not necessarily need to have good credit, as the invoice factor is more concerned with your customers’ credentials.
COVER AN UNEXPECTED EXPENSE. You may have no choice but to take out a loan to cover an unexpected business expense not budgeted for. Anything from replacing some expensive equipment that failed to making repairs after a natural disaster. Fortunately, an emergency business loan can help your business cover the expense of just about anything.
ADVERTISE YOUR BUSINESS. Marketing and advertising is a business expense that can be expensive. SEO and online advertising, commercials, billboard advertising, radio ads, and promotional materials are types of marketing for which you could need a loan, especially if you’re hiring a marketing agency to achieve large results.
TYPES OF BUSINESS LOANS
STARTUP LOAN - Financing for businesses 6 months old or younger.
WORKING CAPITAL LOAN - Financing to cover daily operating expenses of running a business.
BUSINESS LINE OF CREDIT - A credit facility from which your business can borrow money at any time.
SHORT-TERM LOAN - Usually a higher-interest loan that you pay back quickly, typically within a year.
BUSINESS CREDIT CARD - Credit card used for business expenses.
EQUIPMENT FINANCING - Self-securing loan to finance major equipment purchases.
INSTALLMENT LOAN - A standard type of business loan also called a term loan, repaid in regularly scheduled installments.
LONG TERM BUSINESS EXPANSION LOAN- Usually a large, low-interest loan, repaid over 5 or more years.
MERCHANT CASH ADVANCE- Expensive but quick source of business financing for merchants who need fast funds.
BUSINESS ACQUISITION LOAN- Loan to purchase a business.
FRANCHISE LOAN- Loan to open a new franchise or purchase an existing franchise.
SBA 7(a) LOAN - Standard business loan backed by the U.S. Small Business Administration.
COMMERCIAL REAL ESTATE LOAN - Long-term loan to purchase commercial real estate for a business.
HARD MONEY LOAN - Shorter-term real estate loan similar to a mortgage, requiring the property you're purchasing as collateral.
INVOICE FACTORING - Service which converts your small business's outstanding invoices to cash.
EMERGENCY BUSINESS LOAN - Fast loans to cover business funding emergencies.
One in three business owners can expect to need a loan of more than $100,000 but still less than $250,000. More than 1 in 10 business owners are looking for a loan of up to $1 million or more.
There are several options available to help take your business to the next level or to help it get through a slow time. When deciding on the right type of business loan it is prudent to answer these crucial questions:
How much money do you need?
What do you need the money for?
How quickly do you need the money?
How long will it take you to pay it back?
How much collateral do you have to put up for the loan?
Once these questions have been answered, it’s time to look at the options available according to your unique business situation.
FINAL THOUGHTS
Business financing can be intimidating considering all the types of loan products, and the possibility of your application being declined. Making payments on the loan is a real consideration, so be as certain as possible that the reason for the loan increases revenue to pay back the loan and create more profit.
Is a business loan in your future? With one application, find the best lender and loan terms for your business. Get started today!
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