Small businesses take out loans for several reasons, but when we take close look at how the majority of companies spend their initial loan payments, we gain a clearer picture of a pattern of expenditure.
Many think that a business taking out a loan may be an indication of a lack of income and an element of failure. In reality, most modern businesses turn to loans for more positive reasons.
Loan repayments can be an expensive way to receive additional funds, especially when you counter in interest and additional fees which vary depending on the type of loan and where it comes from. These loans can be seen as beneficial investments for the future though when you look at what they can bring to a small business:
Stocking inventory in the run up to an important part of the year is essential to a lot of companies that operate within the retail, hospitality and agricultural sectors as they rely heavily on seasonal business. In order to be ready to take full advantage of busier times in the year they need to be well stocked. Ensuring their inventory is full ahead of time can cost a lot of money, and funds can be running low over a period of downtime, causing the need for capital to be obtained from elsewhere to ensure their stores are ready.
Most equipment that a business utilises is either leased or bought. There are a number of benefits and drawbacks to using each approach; for example, the value of equipment will depreciate over the course of its life, especially through extensive usage, which can also bring about the increased chance of breakdowns occurring. Owned equipment can be sold on at the end of its usage; either to another company for usage or for scrap. Therefore, a cost-benefit analysis is the best way for a company to decide how to purchase their equipment and which type of loan will be best to help them afford it.
Most business growth is associated with the purchasing of further estate in order for a company to expand its workforce, production or to engage with a more extended market. We see a large amount of loan funds going into business expansion as it can be a huge cost for any company, never mind an SMEs. A lot of bank loans that are required for this kind of business growth are generally approved because expansion is a result of that business turning a profit, seeing a rising cash flow and a positive forecast for the future.
Invoice financing is a popular choice for small businesses looking to invest in inventory, equipment or are looking to grow their company but have a lot of capital tied up in their own client’s outstanding invoices. You can compare invoice financing quotes at Quote Goat quickly and easily.