A trip to the East African country of Asmara ignited a fire in Efrem Fesada to open a coffee shop in Seattle, Washington. He started out small by selling green coffee beans in his community for six years. Then, in 2018, he got a business microloan to open his cafe—Boon Boona Coffee.
Taking that step increased revenue growth by 1,000% in his first year of operation.
Efrem had a successful business but took a leap of faith and got a business loan. His gamble paid off.
Like Efrem, many business owners don’t have a pressing need for capital, so they never consider getting a business loan. Plus, many feel uneasy about taking on debt. But, as you can see, the advantages outweigh the debt.
In this post, you’ll learn some of the reasons to get a loan and how gaining access to funds can open doors to a prosperous future for your business.
56% of small businesses use the funding to expand a business, acquire business assets or invest in a new opportunity.
7 reasons to get a loan
Even if you don’t have pressing needs that require capital, there are other reasons to get a loan.
1. Building credit for tomorrow
Some entrepreneurs finance their businesses by obtaining money from family or friends. However, that does nothing to boost your business’s credit profile by financing through banks or alternative lenders.
By doing so, you can qualify for bigger and better loans two, five, or ten years down the road. Businesses with higher credit scores get the best interest rates.
A strong credit score signals to lenders and suppliers that you pay your bills on time and they can offer better repayment terms.
Having an excellent credit history not only improves your chance to secure a small business loan but helps you qualify for other financial products such as a business line of credit.
This is definitely one of the top reasons to get a loan.
2. Lessen financial crunches
It’s uncomfortable to have more month than money.
According to a 2020 report by National Business Capital & Services, 29% of businesses fail due to a lack of capital.
A steady cash flow enables business owners to stay ahead of monetary surprises like equipment breakdowns or a sudden economic downturn that affects sales. With sufficient cash, you can pay expenses on time, purchase new assets, and make deposits to a savings account.
A loan is a great way to improve the cash flow of your business.
3. Scale up to a new level
Borrowing money doesn’t mean your business is struggling.
On the contrary, you can purposely invest funding in marketing, adding new products or services, or move your operations to a better location. Every good business plan includes short and long-term business goals to include potential growth benchmarks the business owner wants to achieve.
Getting a loan makes those projections a reality.
4. Stay competitive
One way to increase sales is to know and understand consumer buying habits.
Customers like to save money, shop for products and services that simplify life and be able to acquire them in different ways. Your business success involves investing in ways to meet customer demand.
That could mean getting a loan to expand your research and development/marketing plans, upgrading your company’s website to include online shopping, or purchasing an inventory tracking system to monitor sales in real-time.
5. Save money
One of the best reasons to get a loan is to refinance one or more loans that have longer terms and higher interest rates for one loan that has a shorter term and lower rate. Making that smart business decision means you have more money to put in a discretionary fund or increase your business’s cash flow.
6. Invest in a once-in-a-lifetime opportunity
A chance to purchase inventory at a substantial reduction or lease retail space in a prime location doesn’t happen every day. When the return on investment outweighs the cost of a loan, business owners should not hesitate to get the financing they need.
7. Prepare for the future
There may come a day when you need a sizable nest egg to retire on. At that moment, selling your business could make sense.
For example, you may want to meet with an accountant to get your financial statements in order or boost sales to get the best price for your business. A short-term loan would cover those costs as well as any upgrades or changes to make your business more appealing to buyers.
Business loans aren’t synonymous with debt
Business owners agree on one principle: they offer products and services to make money and prefer minimizing their expenses to maximize profit.
For that reason, you may feel uneasy about getting a loan. However, when used wisely, a loan is a primary financial tool a business owner uses to grow their business to achieve success.
In fact, debt financing has many advantages.
You can list the interest you pay on the loan as a business expense, and repaying the loan on time makes your business more creditworthy. Lenders also offer different types of loans to match a borrower’s needs and to accelerate growth.
Some business owners borrow money when they don’t need it strictly to maintain or improve their credit scores and keep an ongoing relationship with their lender. By doing so, they’re in a better position to take out larger loans should their businesses experience a sudden and dramatic financial downturn or growth spurt.
Business loans are stepping stones to success
You’re passionate about your business, value your customers, and enjoy achieving success. Part of your entrepreneurial journey includes facing financial challenges and hurdles. Hopefully, this article helps you see that one of the reasons to get a loan is to have sufficient capital to keep them moving forward.
Camino Financial is a safe lending alternative whether you need to apply for a microloan or a small business loan. We invite you to become a part of our financial community.
We provide various funding options and help you choose the loan that’s comfortable for your business. Throughout the loan process, we endorse our motto, “No Business Left Behind,” because every client’s success is our number one priority.