8 Reasons Why Entrepreneurs Seek Business Loans
An organization can take out business loans for a variety of reasons. Financing can come from sources other than banks and NBFCs as well. There are credit unions, micro-lenders, investors, and many who would be interested to finance your business needs, but if you are looking for an unsecured business loan, you need to assure to meet the eligibility criteria of the financial institutions before availing the funds. Borrowing money could be an expensive affair, but it is helps your company profit, it is worth the attempt.
Regardless the financial institution you take the loan from, your intention to use the funds are already defined. We will list out to you some common reasons for which you can apply for business loans, and how the funds would eventually benefit in the sectors you require the finance in.
- Working Capital
To manage your day-to-day operations, you require working capital. Companies may sometimes need business loans to meet their daily operations’ requirements until the earning assets are adequate enough to cover for their working capital needs. Financial institutions can provide short-term loans to small businesses in order to help them go off the ground. As firms grow and their own assets begin to generate funds, you can repay the loan. A fixed tenure will be decided with repayment term, according to which you will have to pay-off the business loan taken for the purpose of working capital.
- Expand Operations
It is likely that you would need finance to expand company operations. Getting monetary help in time can make a whole lot of difference to your organization. Especially, you may require additional money to scale up operations during a peak season or when market is in favour for your product or service. Applying for a loan at such times can enable your company reach new heights, as you would receive necessary funds for expanding operations.
- Purchase/Rent a Workplace
Banks are likely to offer loan to existing firms that wish to rent or purchase real estate for business purpose. Maybe you want to establish a new branch-office in another city or the same city. Loans for real estate are usually in form of a mortgage but can be a business loan, if you use the funds partly for other purpose of your company, and partly for renting or purchasing the real estate property.
- Buy or Upgrade Equipments/Technology
Companies can either take equipments on rent or purchase it. However, today many firms go for new equipments than renting the same, since new equipments have a longer life span and guarantee performance. There are financial institutions offering special equipment loans or business loans. When a bank or NBFC gives you funds for purchase of equipments, it is mostly a term loan which is up to 5 years. You can take a single business loan to sponsor several needs of the company and equipment purchasing could be one of them.
- Add to the Inventory
Unlike equipments, inventory is something crucial and indispensable. A company could use a business loan at its best when it is expected to meet highest sale, like during holiday season. In such incidences, arranging adequate inventory in advance is important. You can apply for a business loan and utilize the funds to add to the inventory. Loans for such purposes are usually for a short-term and paid off in regular EMIs. With aid of loan for inventory, you can gear up production and sales for your organization at the right time.
- Hire New Talents
When you are working to give a new meaning to your company, you may want to hire additional staff for support. There comes a time when you would require staff for easing administration, accounting, bookkeeping, marketing, customer service etc. If you currently have a small team and looking to bring on more number of professionals, on board, then you can apply for a business loan to cover for the cost of hiring and reimbursement for them.
- Money for Investment
Many businesses take out a loan for investment into equity or other areas, which would reap them higher returns than the amount they have to pay towards repaying the debt. However, if you plan to borrow money for investment, you need to be very careful. Always have enough cash flow, just in case you face a loss from the investment made. Banks and NBFCs have stricter eligibility criteria for companies that may want finance for investment purpose.
- To Cover Up Losses
It may sound strange, but yes, you could take a business loan to cover up for the endured loses, but only if the lending institution is convinced that you would be able to repay the loan in time. Sometimes, circumstances are such that things do not go as the way they are planned, which could hard-hit the financial situation of a company. However, if your company (in such dire situation), shows a chance of recovering the loss and gaining a sound financial position, then banks will not hesitate in extending monetary support.
If you are a business owner, then above-mentioned reasons could be some for which you would want a business loan.