When you own a small business, you know that it’s critically important to take care of your customers and clients. Whatever you do in your business, you have to do it well in order to keep them coming back.
Of course, that’s just the side of the business that the customer sees. If they like the price and product, they’ll stay with you. But the problem can come up when you don’t properly manage your side of the equation, which is the financial management of the business.
When a business starts out, there’s a sort of startup hump that you must overcome. You need to establish your product and your brand, and to get started with some sales. Once things get rolling, you can grow steadily. The normal growth of revenue won’t be enough to finance the upgrades. You’ll need to get a loan.
Many entrepreneurs are reluctant to borrow money. They’ve often made the business pay for itself, keeping a day job while building the business at night. They struggle to understand how it can be good to borrow money when they’ve never done it before.
And it can be a real pitfall for some owners. The key is to manage the whole process carefully and it’s easy to understand the different options online with sites like Dealstruck.com, which specializes in loans to help businesses grow.
So let’s take a look at some of the specific reasons why you need to take out a loan to grow your business.
Faster Growth Is Needed
For the moonlight entrepreneur, you will reach a point where the demands of the business are such that you struggle to fulfill the responsibilities of your full-time employment while simultaneously keeping up with your growing business. At some point, your revenue needs to take enough of a leap that it can pay you at a full-time rate so that you no longer have to work elsewhere.
For example, flipping houses or operating a few units of rental property can bring in a tidy sum on a part-time basis, but at some point, you will have so many such projects going on that you will need to consider a bigger rental enterprise to make it a serious business to support you. A good business loan will let you reach that level so that you can focus 100% of your energy and time on your business.
Other Funds Are Exhausted
When you start out, you might temporarily raid the kids’ college fund, tap your retirement reserves, or borrow against your home’s equity to get the cash you need for business purposes. You may have even fully replenished the money but run into rules against further borrowing, or simply feel like you won’t have the money back in before you’ll need to use it for its original purpose. After all, when you have a sophomore in high school growing up in your house, you can’t take a five-year loan from his or her college fund.
There’s a lot to be said for borrowing money for its real purpose, rather than getting creative in your financing. If you can get a business loan, you can repay it on business terms and on a business time horizon, without endangering your other financial needs outside the enterprise.
Insulating Your Personal Resources
That brings us to another point. You don’t want to endanger your personal wealth for a speculative investment in your business, if it’s at all possible. If you own a bakery and want to borrow $5,000 to upgrade your kitchen, you might leverage the company’s van as collateral. If business slumps and you default on the loan, the bank can get the van. Tough break, but far better than borrowing against the car that your family uses to get everyone to work and school.
A business loan will contain its financial future to the resources of the business. Starting out, you probably consumed basement or garage space, time with your family, and your own energy to get the business started. At some point, you need to draw a line and make the business take care of itself. With your hard work, it will.
Owning a business is exciting and gratifying. Seeing it grow is even more so. When your business reaches a point where it’s about to take off, it needs to be handled financially the way a business should be. Don’t be afraid to take out a business loan to help it achieve its potential. Make the step with the help of trusted advisors and watch the growth.