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When Should You Get A Business Loan?

When Should You Get A Business Loan?

The reasons a business needs a loan range from getting the business up and running to allowing it to grow profitably. A loan can help your business achieve its goals or provide the financial cushion it needs to take the next step. If you aren’t sure whether taking out a loan is the right move for your business, consider some of these reasons before applying for financing. 

1. To Help With Expansion. Before your business takes out a loan for expansion, it’s a good idea to run the numbers to see if this type of growth will increase your revenue. Ideally, you will be able to pay back the loan with ease after your business has opened a new location or added a new product line. 

2. Establish an Emergency Fund. Emergency funds aren’t only for personal use. Having cash in a savings account to cover unexpected expenses is also a good idea for businesses. Instead of having to tap into your own personal savings or put away a small amount over several months and years, you can start with a fully-funded emergency account, paying back the loan with your business’s earnings each month. .

3. Manage Your Business’s Cash Flow. Cash flow refers to the way money travels to and from your business. A loan can help balance your cash flow situation. The loan can provide the cash you need during lean months to keep up with bills or make investments in your business.  

4. Purchase Equipment and Inventory. Your business might need new equipment to make its products or continue to offer its services to clients. If that is the case, you typically have two options: buy or lease the equipment. It might also be the case that your business needs to purchase a lot of inventory, all at once, and it might need cash to help cover the cost of the purchase. Since your business will earn revenue by selling the inventory, it can make financial sense to use a loan to cover the upfront cost of the purchase. 

5. Build Business Credit. One last reason why getting a small business loan might be a good idea is that applying for and getting approved for a loan, then repaying the loan according to the terms, can help your business establish a solid credit history. The better your business credit, the more likely it is to be approved for loans in the future, which can help it continue to grow and reach its goals.  

Lastly, you can’t qualify for business financing without the proper financial documentation. And even if you do have your finances neatly organized in a silver 3-ring binder, the numbers still need to prove to lenders that you and your business are a worthwhile risk. Fortunately, bookkeeping not only helps document and organize your finances, but it also arms you with the information necessary to improve your business’s health and qualify for financing. Is your business ready to grow, but your finances are still in shambles? This is where we come in, book a call to learn more!

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