Small Business Owners, in the face of the Covid-19 pandemic, continue to grapple with the double challenge of how to survive the lockdown and thrive thereafter. There are also worries that some Small Business Owners may go out of business if they do not get help. Fortunately, there is a growing range of support for them, like the single-digit loans on offer by the Central Bank of Nigeria under its N50 billion stimulus package for Micro, Small and Medium Enterprises (MSME).

While Small Business Owners scramble for this loan and similar credit facilities, they should stop and think. They should answer the question: Why should they use a loan to grow their business? Every business seeks to grow and rank above its competitors. Similarly, every business needs cash to grow. It takes money to make money.

Simply defined, a loan is money that is borrowed, to be repaid with interest. For a Small Business Owner, a loan is usually the last resort, after exhausting other options. Thus, before settling for a loan, the Small Business Owner must know the type of loan the business needs, as determined by the purpose of the loan. He or she must also have a deliberate plan of how to utilise the funds. And, most important, after considering the amount, duration, interest rate and repayment terms, he or she must have a clear and viable plan of how to repay the loan. With these in mind, here are some ways a Small Business Owner can put a loan to good use:

1. Purchase Of Equipment: When a business needs a machine or tool to work or the one in use is outdated or has exhausted its lifespan, the options are severely limited. It must be replaced since the business needs it to work. If the item is costly and cannot be replaced from the daily cash flow of the business, financing its purchase with an affordable loan becomes a ready recourse. Such a purchase repays itself by delivering a better product or service for its customers, and helping the business turn a profit.

2. Purchase Of Inventory: Inventory can be a major expense item for a small business. Ensuring adequate inventory at all times can be a stretch on cash flow. It is a constant struggle for a small business to maintain a balance between its cash flow and the need to keep relevant stock, which sometimes requires large purchases. In the end, it makes business sense to take a loan to purchase inventory, make profit and get a return on investment.

Before getting a loan for the purchase of inventory, the Small Business Owner must be guided by the sales history and sales projections of the business, and the cost of the loan against the total projected sales of the business. This analysis must show that the projected return will be cover the total cost of the loan and leave a surplus; meaning that the loan can be turned into profit.

3. Marketing: Not much happens in a business until it sells its product or service. One sure-fire way of growing a business is by running marketing campaigns, with a view to acquiring new customers while retaining old ones. However, customer acquisition is an expensive enterprise. A marketing campaign, traditional or digital, requires funding. Where the business cannot finance its marketing plan from its regular trading activities, a loan for this purpose is a wise decision if it will increase sales volumes and revenues that can be re-invested in the business.

4. Capacity-Building: A business is as good as the people who run it. As often happens in a start-up, the entire business might not be more than the owner, a one-man band working in multiple capacities. As the business grows, the business will need to acquire new hands with differing and complementing competencies. This is the time to boost the capacity of the business, by investing in the human capital that will keep the business innovative and competitive. This can also apply to an old business seeking to expand its trading activity. Using a loan to hire fresh talent, which translates to additional executive capacity, is a worthy step towards enhancing productivity and increasing the revenue base of the business.

5. Building A Credit Profile: The average small business does not have a credit history, simply because it does not have a record of past borrowings. Reason is that the big lenders don’t consider small businesses as credit-worthy. How does a Small Business Owner get out of the chicken and egg quagmire? To break this jinx, a small business with its eyes on big loans in the near future must start preparing now. It must begin to build its creditworthiness by procuring small, short-term business loans and making regular and timely payments on them. This way, the small business will build a track record, have cordial relationship with lenders and ready itself for a big loan when it needs it.

All said, contracting a small business loan is not a casual affair. A Small Business Owner must contract a loan only when it is the right thing to do. A properly utilised loan can energise a business for long-term growth.

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