Small Businesses borrow money to ensure access to extra working capital. These funds can help small business owners grow their businesses, weather rough patches, and operate more efficiently. Do you need to decide if it’s the right time for your business to apply for a small business loan? If so, take a moment to gain some insight into the nature of business borrowing and when small businesses owners can gain the most benefit from it.
The Basics of Small Business Loans
If you haven’t ever applied for a business loan before, you might have funded your business with your personal credit or savings. You aren’t unique in your approach. In fact, Forbes reported that a majority of new businesses use personal savings or loans against personal credit and assets. In contrast to personal loans, small business loans are those that are made specifically to a business and not to an individual.
Types and sources of business loans may vary wildly. For example, the terms can vary from 30 days to 30 years, and the amount borrowed could range from a few thousand to many millions. Businesses use this money to ensure access to working capital when they need to hire employees, purchase inventory, or make other investments that support business growth. Certainly, you should explore different loan options before deciding which one to choose.
What Time Is the Right Time to Get a Small Business Loan?
Consider these three circumstances that signal a small business loan could help your business:
Establish Small Business Credit
If you’re relying upon your personal line of credit or savings account for business funding, you aren’t establishing credit in your company’s name. In order to raise your company’s credit rating, you need to establish the company’s own credit accounts. That first loan also gives your business a chance to demonstrate that you can handle this kind of credit responsibly. Even if you don’t absolutely need a loan today, you never know when you might urgently need one in the future. You can always apply for a line of credit and only borrow money as you need it. Certainly, you can find some way to use some extra cash to help reduce future expenses or grow your business.
Why not borrow a modest amount to fund a business goal? You can pay the loan back promptly and know you’ve got access to credit when you need it. If you start by borrowing a manageable amount, you also have a chance to test out your credit management strategy.
Incorporate Your Business
Incorporating gives the owners certain protections for their own individual funds and credit ratings. Mostly, corporations and not individuals are liable for corporate debt. Those protections won’t extend to your personal obligations to credit card companies and banks. By using personal credit and savings, you’re ignoring one of the greatest benefits of incorporating.
If you use a small business loan to fund your company, you’re shifting the liability to your business and using other people’s money to grow. You want to establish a great history of prompt repayments and wise credit management. At the same time, you might as well take advantage of the protection that incorporation can offer.
Get Help with Cash Flow
Managing cash flow is one of the most critical elements of managing a thriving business. Even Small Businesses that run very profitably may fail if they lack the cash to pay bills. In some cases, having access to extra cash can help Small Businesses save money in the long run. For example, this cash can purchase modern equipment, buy more inventory to qualify for a discount, and pay extra employees.
Experienced entrepreneurs know navigating cash flow cycles is an art. Businesses go through natural, predictable ebbs and flows. Newer business owners, however, are unlikely to have large cash reserves, and one wrong turn can be detrimental. That's why it's so important to have a cash flow management plan that empowers the business to maintain long-term health, which requires careful planning.
Managing credit is simply one aspect of managing cash flow. Small Businesses often need to hire more employees or buy new equipment before those things will actually produce extra revenue. A small business loan can bridge this gap.
Getting Started with Small Business Loans
Owners of small and emerging businesses may find that bank credit is tough to get. Even when banks approve loans, weeks or even months can pass between the initial application and actually getting funds put into an account. That’s why many business owners are turning to online lenders.
Here are 3 small business funding options to consider:
- Revenue Based Financing - Today’s business owner is constantly on the lookout for growth opportunities and must move quickly to take advantage of them. An opportunity for an acquisition or expansion can arise suddenly and needs an immediate response and immediate cash. There’s also the need to purchase equipment or inventory. And of course, there will always be emergencies and cash flow gaps that need to be quickly managed with working capital. That’s why revenue based loans & cash flow loans from LVRG are the fastest growing working capital solutions among small and medium-sized businesses. They’re the most prudent option for business owners needing capital to fuel or accelerate their businesses growth. LEARN MORE
- Working Capital Loans - At any stage of growth, fast, flexible funding is essential to the continued success of your small business. Our working capital loans feature 6 to 18 month terms and fixed payment options to accommodate your specific needs, so you can focus on what you do best, running and building your business. LEARN MORE
- Business Line of Credit - A small business line of credit provides flexibility that a regular business loan doesn’t. With a small business line of credit, you can borrow up to $100,000 and pay interest only on the money borrowed. You then draw and repay funds as you wish, as long as you don’t exceed your credit limit. Need to manage cash flow? Buy inventory? Pay for a surprise expense? Then a business line of credit makes sense.
Business owners can save time by filling out applications on their computer or smart-phone. They often also find that online lenders approve many applications that banks decline. Funding usually happens within a few hours to a few days of filling out the application. If your company needs some extra cash to reach its potential, you might find that an online lender is the easiest option for obtaining a small business loan.
Small Businesses borrow money to ensure access to extra working capital. These funds can help business owners grow their Small Businesses, weather rough patches, and operate more efficiently. Do you need to decide if it’s the right time for your business to apply for a small business loan? If so, take a moment to gain some insight into the nature of business borrowing and when Small Businesses can gain the most benefit from it.