Why you need a Business Loan?

While conversing with your friends, business partners and lenders, you unknowingly touch on this topic; I need a loan, more specifically a small business loan. People respond in different ways, as to what might happen with loan, why you need it etc. You face it every time, if you run a small business.

Depending on your current business circumstances, there could be various reasons as to why you need a loan. Your small business requires a rise, or you need working capital; the list of purposes is endless. Getting a small business loan is not that relaxing but more important is actual reason of asking for a small business loan.  

Here we jot down major points which require you to indulge in probing for a small business loan.

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You wish to expand the office space: The cubicles are all filled, new people are looking for place to sit & work; in a retail store you may need place to fit in more goods for display. All this points out that business is expanding; revenues will increase. But you may not have funds to grab this opportunity, as costs involved are significant. Before pampering your business with a loan, just measure whether the profits from proposed expansion, will cover the loan costs and maintain profit margin? You may use revenue forecast methods or other available research techniques to know the impact on business.

·         Want equipment for business: You need certain machinery for manufacturing or improving service quality of your goods and services; and you need funds to buy that. What is the actual requirement of the equipment, its future value and utility, all needs to be considered. The pricey machinery could also act as collateral in future for business loan. But make a balance between the actual need of equipment and good to have it situation.

·         Require product inventory: Inventory is an expense if the churn out ratio is low. In case of dynamic tech industry, the products may soon become obsolete with no buyers for it. Same is the case with season based business, you need to purchase enormous inventory and stay with it during off seasons. All this again needs funds, so always calculate the debt cost with the projected sales margin and then jump in for a loan. 

·    A business opportunity knocks your door: Your business got a new client or a big order, but you lack resources to complete it. Determine the real return on investment, the pros and cons of loan and then take a decision based on numbers, not on your feel good factor.

·         Thinking of future: You will expand the business in few years down the line & would require large scale finance for it.  So why not start building your credit worthiness from now. A strong credit history with on time repayment will build the credibility of your business. Here again do consider that whether the amount of debt can be paid back on time, otherwise you may tarnish the market reliability of your business.

Regardless of your reasons to go for small business loan, if the loan is able to improve the business in both long & short run; just go for it! Be confident in your abilities and succeed in business. 

Resource:- http://www.lendclouds.com/blog/why-you-need-a-business-loan