When it comes to business growth, small and mid-sized companies have a wide variety of options for funding. Whether they opt for equity or debt, they have a lot of routes they can take from borrowing from friends/family, using credit cards, reaching out to angel investors or creating a crowdfunding campaign, or remortgaging. However, for a larger business loan, big banks are often the lender of choice.
Why Should You Choose a Loan?
When you finance with debt instead of equity, you don’t have to give up a piece of your business, sacrificing its value in the future. Repaying the loan can improve the credit profile of your company, which can make it easier and cheaper to borrow in the future.
One of the advantages of a fixed-term loan with set monthly payments is that it’s fairly easy to manage. On the other hand, if you have a business with less predictable cash flow, such as a seasonal business or clients who tend to pay late, you may need a more flexible option.
A business loan specialist can help you put together terms based on the needs of your business, including things such as paid holidays. Typically, a loan cannot be called on-demand, so you’ll have the full term to repay it.
However, it will take time to get approval and you’re likely to have to fill out a lot of paperwork and take steps to prove to the lender that your business is healthy enough for a loan.
6 Ways a Business Loan Can Help Your Business
Of course, taking out a business loan does not mean that you are struggling, it’s a great way to grow. Below are six ways that a business loan can help your business grow.
Many times, when an entrepreneur launches a business, they bootstrap, which means they are frugal with their cash, so they don’t have to borrow. For those who are unable to get the money on their own, equity financing is a popular way to get started. However, debt financing is an option if they can prove they will be able to repay.
Fund New Equipment Purchases
Another reason that business owners use business loans to grow is through the purchase of equipment. Often, they will opt for fixed-term loans for purchases of IT equipment, machinery, or vehicles. Asset-based lending may be an option in this case, where the asset you purchase is the collateral in case you default.
Getting the Right Space
No matter what stage your business is in, having the right space is critical. You must consider whether you are going to buy or rent- and there are advantages and disadvantages with both. You could use a business loan, but in most cases, it may be better to use a commercial mortgage. Keep in mind that you may need a large deposit. If you have a building, but you’ve outgrown it and want to move somewhere else or you need funding to renovate, a bridge loan might be a good option.
Cash Flow Management
Another way to use business loans is to provide short-term working capital or a long-term investment. A working capital loan can help you bridge a funding gap quickly or respond to an emergency or unforeseen circumstances. That being said, business loans should not be used for ongoing expenses. This is an indication that you are not great at managing your money and may struggle with paying it back.
Tap New Markets
If you want to expand into new markets, a new product/service launch may help. A business loan can give you the funds you need for research and development, as well as for marketing required to promote it once you’re ready.
Making an Acquisition
If you have a mature business and you’re ready to take the next step, business loans can help you merge with another business, acquire a business, or take over a business. This is a complicated area, so you will want the assistance of a deal advisor and a detailed business plan to show your lender.
Do You Need a Business Loan?
Are you ready to take the next step and get a business loan to fund your growth? If so, contact Crimson Stone Capital Solutions. We will be more than happy to help you determine what you need and also help you get it.