Loans are expensive whether you’re getting one for your small business or personal needs. They often come with high-interest rates and other additional fees that make them very risky. But you need them, they are essential to a small business or any business for that matter for many reasons. But because loans are expensive, it is super important that you’re crystal clear about the reasons you need a loan and why it is worth the risk. Here 3 broad reasons why your business needs a loan:
Read More: Beyond Finance: Why SMEs Need More
- Equipment and Inventory Purchase– When your business lacks some key machinery or inventory necessary for the smooth running of your operations, your business suffers, you lose revenue and it makes it difficult to fulfil your customer’s needs. To avoid this, your business may need to get new equipment or replenish its inventory but your available cash may not be able to cover such huge expenses, in this case, you can choose to finance such a purchase through a loan. A business loan can be used to get new equipment or upgrade an old one, it can also be used to replenish your inventory and ensure you’re able to meet up with the demands of your customers so you don’t lose revenue. By choosing to finance such expensive purchases through a loan, you can avoid inflicting any damage to your cash flow.
- Expansion or Investment in Growth Opportunities– As your business grows, what it needs would continuously increase; you may need to change its location if it gets too small for your employees or customers (if it is a retail outlet) or if you simply need to open a new branch elsewhere to meet up with demands. You may also begin to identify other growth opportunities, sometimes outside your current line of business too. But financing this expansion and new opportunities requires a new influx of cash that your business alone cannot cater for, so you seek loans from a bank or other sources of loan. Using loans instead of relying solely on your business funds to cover the expenses of expansion would help you keep your existing business in good health as you grow.
- Working Capital– A business loan can be sourced to help the business meet up with its day to day operations needs. When a business is running short of cash to pay suppliers, employees, utilities or rent, getting a short term loan to meet all these needs is a great idea especially when the business owner expects to be able to repay the loan within a short time.
There are of course more reasons a business may source for business loans than I can list here. But whatever your reason for getting a business loan is, make sure it is clear and the financing received will be spent on meeting the need otherwise the loan, may become even more costly for your business.
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