Each entrepreneur nowadays has option to choose from a wide range of conventional and new age business loan products. The small business loan products differ from each other in a number of aspects – loan amount, interest rate, repayment tenure, and business use cases. Some lending institutions require borrowers to state specifically how the credit will be utilized. They even include specific terms in the lending contract to penalize the borrower if they do not utilize the credit for the original and intended purpose.
At the same time, many new age lending institutions allow borrowers to utilize the credit for a number of purposes according to precise business needs. Hence, it becomes essential for entrepreneurs to read the lending contract clearly to decide if the small business loan can be utilized for a specific purpose or multiple purposes. However, each entrepreneur can use the small business loan to meet his business’s short-term and long-term financial needs. They can further use the small business loan in a smarter way to improve business processes and drive sales.
7 Things Entrepreneurs can do with a Small Business Loan
1) Purchase Equipment
The latest digital technologies enable enterprises to carry on business activities without investing in on-premise IT infrastructure. But the enterprises still need to invest in a variety of equipments to improve manufacturing process and business activities. The small business loans enable entrepreneurs to purchase the required equipments without renting or leasing them for short periods.
2) Purchase Inventory
No enterprise can remain profitable in the long run without managing inventory efficiently. It needs to procure additional inventory to make adequate products available during peak seasons. Also, an enterprise can avail additional trade discounts by purchasing inventory in bulk quantities. Many small business owners use small business loans to purchase additional inventory at the right time and at the right price.
3) Fund Working Capital Needs
The small business owners cannot carry out day-to-day operations smoothly without maintaining a positive working capital. They need funds to meet immediate working capital needs. The small business loans enable entrepreneurs to fund both current and future working capital needs. A large percentage of small business owners even apply for credit to fund working capital needs and improve cash flow position.
4) Expand Business Operations
Often entrepreneurs find it difficult to expand their business operations due to lack of adequate funds. But they cannot remain competitive and profitable in the long run without leveraging the growth opportunities. Many entrepreneurs apply for business loans to expand their existing businesses. For instance, a retailer can use small business loans to set up new retail outlets at additional locations. Likewise, a restaurateur can leverage small business loans to shift his restaurant to a crowded and spacious location.
5) Hire Skilled Professionals
While staring a new business, entrepreneurs have to act as accountants, marketers, and customer service executives. But they need to hire skilled professionals to improve business processes and optimize customer experience in the long run. Often small businesses and start-ups find it difficult to attract fresh talent and skilled professionals due to resource constraints. The small business loans help entrepreneurs to optimize business processes by hiring skilled professionals and expanding existing teams.
6) Launch Aggressive Marketing Campaigns
Both conventional and online businesses nowadays need to launch aggressive digital marketing campaigns to drive sales and promote customer loyalty. The entrepreneurs have option to promote their products, brands, and businesses through multiple channels – search engines, social networks, and paid ads. But small business often lack the resources required to launch and sustain aggressive digital marketing campaigns. The small business loans help entrepreneurs to launch digital marketing campaigns by overcoming resource constraints.
7) Repay High Interest Loans
Often entrepreneurs find it difficult to avail credit while starting a new business. Many business owners even avail credit at higher rate of interest and unfavourable terms of lending to set up a successful enterprise. Many entrepreneurs use small business loans to repay or refinance the high interest credit. The loan refinancing enables them to improve cash flow position by reducing loan EMIs.
On the whole, the small business loans can be divided into two broad categories – open end and close end. The entrepreneurs can use close-end business loans for a specific purpose and open end business loans for a number of purposes. Hence, what an entrepreneur can do with a small business loan depends on the type of credit. However, the new age lending institutions enable borrowers to use the small business loans to fund varying financial needs of their businesses.