Not all debt is bad. When used carefully, debt can help a business manage a short term cash flow situation or expand their business. A small business loan can be used to help a business owner remove obstacles that stand in the way of achieving the next level of success.
Leveraging Small Business Loans
Should a business owner take on debt in order to grow their business or should they wait until they have the cash reserves to expand their business? This is a question many business owners face when they are considering taking to the company to the next level.
This question isn’t always easy to answer. Sometimes entrepreneurs feel trapped because they can’t achieve growth without a huge investment in their company. Many owners face these growth dilemmas:
- They can’t bring in more customers without moving to a more expansive location with more traffic
- They can’t win bids for large customers without the funds to cover expenses until the customer pays
- They can’t produce more products without investing in expensive equipment
- They can’t launch a new product line without being able to cover launch expenses
- They can’t expand without moving to a larger facility
Many of these opportunities for growth can’t occur without the business owner taking on debt. So. Should the owner let these opportunities pass them buy or take the risk and obtain a small business loan?
Take on Debt or Wait?
Obtaining a small business loan for growth is a reasonable risk to take if you have a clear goal in mind, a business plan that outlines how the money will be used, and an understanding of the return on investment you will be able to achieve.
This investment needs to be able to cover the principle and the interest of the small business loan you will be taking out for your company. You need to be able to calculate the profit you will achieve with your investment, what your new earnings will be, and if those new earnings after expenses will be able to repay your loan plus interest.
The type of loan that you will use to achieve growth will be a major factor in your ability to cover the principle and interest. You need to find out what type of loan you can qualify for based on your company’s current income, potential collateral and personal credit rating. If the interest rate is too high or you won’t be able to obtain a loan for the amount you need, they you may want to consider alternative loan products.
Alternative Small Business Loan
Companies caught in the viscous cycle of needing a small business loan to achieve growth but can’t qualify for a loan before they increase their business income may want to consider an alternative loan. These alternative financial products include:
- Cash advances
- Loans based on collateral
- Angel funding
- Business credit lines
Alternative lenders don’t consider the same criteria as traditional lenders for their small business loans. You may be able to qualify for the funds you need based on your future earnings and achieve the growth your company needs to reach the next level.