40% of business owners applied for a loan in 2017. In that same year, these loans totaled over $600 billion dollars.
The average loan amount that year per borrower was $663,000. However, the majority of business owners borrowed less than $100,000.
Many businesses and individuals may be cautious about taking out loans. While everyone has their opinion about debt-related endeavors, sometimes getting a loan is a necessity.
That doesn’t mean that taking out loans shouldn’t be well-thought out, though. Taking out loans can either be the best thing that happens for your business or it can leave you paying the bill.
Only you know what’s best for you and your business. But, if you’re trying to decide which course of action to take, it’s a good idea to know the positive and negative reasons for taking out a business loan.
Read on to discover 7 advantages of taking out a business loan.
1. Purchase Equipment
Purchasing expensive equipment can be difficult for any business. But, it’s especially arduous for start-ups. This is where an equipment loan can make all the difference for the future of your company.
So, if there is something you need for your business like an automobile or computer system, then get a loan for it. The best part is that you can also write-off the expense from your business taxes the first year you earn it. As the piece of equipment depreciates, you can also write-off its value.
Loans for pieces of equipment operate similarly to car loans. The piece of equipment is used as collateral. What’s most important, however, is that you pay off the loan to avoid defaulting and losing the equipment.
Should you default, your business’s and/or your credit score could suffer as with any loan.
There’s also the option to lease business equipment as well. Whichever path you decide to take, make sure the equipment is essential to the operation of your company.
2. Real Estate Expansion
Growth is a good thing for a business, but there comes a time when you outgrow your original location. You may need to hire more employees and that means needing more space.
Banks tend to support businesses who are successful. And, the need to expand and purchase more real estate is a great sign that your business is profitable and accomplishing its goal.
For many businesses, purchasing real estate outright would be a difficult task. In most cases, it simply wouldn’t be feasible leaving the business to function at a less than ideal level. This is where a real estate loan for your business can make all the difference.
These loans work similarly to a home loan in that you have a mortgage, the building acts as collateral, and the loan term is usually 25 to 30 years.
Sometimes businesses just need a cash flow pick-me-up to get the business running smoothly again. These loans cover day-to-day operational expenses until the company has enough earning assets. These are short-term loans and also may carry higher interest rates and fees, however.
There are a number of different working capital loans that you can receive as a business. These include short-term, invoice financing, merchant cash advance, lines of credit, and SBA loans.
Do more research on each loan type to determine which is right for you. You’ll also need to discover which types you can be approved for as some are more difficult than others to obtain.
4. Hiring Talent
Feeling swamped trying to complete a variety of tasks each day? Does your team seem to be overwhelmed by their daily duties? Then it may be time to hire more people.
Start-ups and growing businesses often need more hands on deck to be successful. While there’s tons of excitement and motivation at the start of a business venture after a while exhaustion can set in. You and your employees may even begin to feel burnout which could lead to the business suffering and not reaching its goals.
This where a business loan to hire new employees can help the most. Especially, if you’re noticing that a lack of helping hands is hurting your business’s goals and mission.
5. Purchasing Inventory
If you’re in need of additional inventory, then a business loan could help you out. Sometimes, companies need to purchase inventory in large quantities, but may not have the capital to make it happen. This is especially true for seasonal businesses or businesses that sell seasonal products.
To determine if purchasing inventory is a good decision for your business, crunch the numbers. Try to discover exactly how much you’ll need and what your sales projections are.
Marketing sometimes gets swept under the rug for businesses because of the time, effort, and capital it takes to run marketing campaigns. However, if marketing is what’s holding you back from expanding, then consider getting a loan.
The loan can be used to hire a marketing expert or to outsource your marketing to a third-party company.
7. Investment Opportunity
Sometimes an investment opportunity presents itself and you just can’t say no. This could include expanding the size of your office building, investing in more employees, or purchasing equipment for a job that will have a great return.
But, make sure that the investment opportunity is truly worth it. Crunch the numbers and determine if you’ll actually receive a profit once the loan is paid off. If not, then it might not worth the investment.
Taking Out Loans: Making the Best Decision for Your Business
In the end, only you can determine if taking out loans is the best decision for your business. Always make sure to analyze the numbers and be realistic about your investments. Loans certainly have pros and cons, so it’s best to see the big picture to discover if getting one is the right move for your company.
Need a loan to develop an app? Check our blog post to determine if you should outsource your business’s app development.