About 20-percent of all small businesses fail in their first year, and many fail because of a lack of funds. Sometimes, good small business management means applying for a business loan to keep your business running, regardless of its age or stage of growth.
There are several benefits of applying for a small business loan, including launching a business and expanding an operation. It also develops a relationship with a lender.
Check out these benefits of applying for a small business loan.
Launch a Business
2021 saw the beginning of nearly 5.5 million new businesses across the U.S. While the average business startup costs can vary, business financing is something to consider to get a business off the ground.
There are several things needed when launching a business, including technology, infrastructure, and equipment.
Small business loans buy computers, software, and communications equipment needed for daily operations. Technology is a big expense, so business financing through a business loan is an excellent choice whether you lease or buy.
Infrastructure choices can also increase costs. New office spaces will need desks and filing cabinets. Perhaps the office building will need new doors, windows, carpeting, new signage, and paint. Contractors might also have to spend money on code upgrades such as handicapped accessibility.
Business plans typically identify the type of equipment needed to launch a business. Business financing can pay for industrial machinery and even trucks required to transport goods and materials.
Applying for a business loan can help you accomplish all of these goals.
Expand an Operation
Business loans aren’t just for startups. When managing a small business, owners might identify areas for future growth. Small business loans can help fund any expansion, whether a new location, additional employees, or inventory.
New location costs can mean building a new building or remodeling an existing structure. You can also use the money for lawyers, surveyors, or contractors needed for an expansion.
A small business loan can also pay for new employees needed for an expansion or new business venture. Perhaps that person will head up marketing efforts or specialize in logistics. Spending a small amount of money on a new employee can reap big benefits when your venture explodes.
Does the new expansion need more inventory? When applying for a small business loan, include items required to assemble products or things you can’t create.
Develop a Relationship With a Lender
Managing a small business means you’ll need access to capital for various projects over the lifetime of a business.
A personal relationship with a lender allows for talking about strategies and the solutions offered by a lender.
Comprehensive strategies are also essential to determining a long-term plan and setting financial goals. Perhaps you need help with saving for your personal retirement.
Moreover, lenders can help with planning for a future transition. Many family businesses want to leave their wealth to a future generation. Good financial health is essential so that you don’t leave the business with debt.
Lenders can also talk with you about loan repayment or financing options. A lender can discuss how both can be to your advantage should interest rates rise or decrease.
Interest rates for a small business loan can be as low as 2-percent and as high as 7-percent. A small business loan is better than refinancing a home or putting money on a credit card.
It’s best to talk with your lender when applying for a business loan about the different types of loans. A fixed-rate loan is best because it means you’ll pay the same interest rate over the life of a loan. An adjustable-rate loan may be lower at first but will rise over time.
The economy can adjust interest rates quickly, so lock in a low-interest rate when you can!
A lack of cash flow can hinder managing a small business.
Significant cash flow with a business loan will make sure you never run out of cash. You will always pay your employees on time, and you’ll have everything you need to keep the business running with daily supplies.
Peace of mind is important in small business management. You want to leave the office every day knowing things are in good shape. Having good access to cash flow improves your comfort level.
Small business loans give you control over how you spend your money.
No one will interfere with your decision-making process. The lender may ask to see a business plan, but the decisions are left up to you.
Having control over your money helps you use the money as you see fit. You know best the daily needs and operations. You understand your profits better than anyone. The last thing you need as a business owner is to have someone dictate how to operate your checkbook.
Taking out a small business loan is suitable for your taxes. You can write off the interest you pay on your business loan.
To qualify for a tax deduction, the loan must come from a lender and not from family or friends. The money borrowed from the lender must also be spent on the business, not on personal expenses. You can not deduct the interest on a refinanced loan.
Talk with a tax professional or your lender about the money you can deduct at tax time!
Small Business Management and Loans
There are plenty of benefits of business loans as part of your small business management strategy. Loans are great for launching a business, expanding, and building a relationship with a lender. Small business loans have great interest rates, can improve cash flow, give you control, and are tax-deductible.
Small business owners should take advantage of the benefits of a small business loan. Take your business to places you never thought possible!
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