Are you a proud business owner? Are you hoping to launch your company in the near future? Have you come to realize your financial situation is not everything you want and need it to be for your business to scale?
At some point, you may realize you need to apply for a small business loan. Even if this is a bit intimidating, it could be the only thing standing between your company and greater profits. Before you do anything, make sure you have a clear idea of how you will use the money; for example, you may require a loan to roll out a more robust Instagram marketing campaign or do market research to develop a model for the best tactical flashlight.
Ultimately, you’re the only person who can determine whether the investment you’re making into your business by taking out a loan is worthwhile, but whatever your reasons for applying, you need to have a clear plan for how you’ll use the money to prevent you from making unnecessary purchases with the funds. Whether you’re trying to cash flow video editing services for a major motion picture like People You May Know or need a loan to purchase updated equipment and technology for your business, there are several pros and cons to taking out a business loan.
- Access to the Cash You Need
According to TownSquared, there are nearly 30 million small businesses in the United States alone, and while some of these companies may have been able to reach their goals without any outside cash, many relied on a loan to gain access to the resources they needed to succeed. It can take a few weeks to complete the loan application process and receive an approval, but it’s well worth it in the end. There’s no better feeling than knowing you have access to the cash you need to build your business.
- More than One Option
As noted by Fundera, there are nearly 20 types of small business loans to consider when you start the application process. It’s not always easy to compare the details of each loan type, but it’s worth digging around until you find all the details you need to accurately assess the benefits of each. The right type of loan can make a huge difference, especially since it can affect the interest rates you’ll end up paying. Maybe you went into the application process assuming a small business loan would be the best fit for you, but find that a line of credit makes more sense for the amount of money you need to borrow.
- Great Way to Build Your Credit Score
Credit Karma does a great job explaining the ins and outs of your credit score, but when it comes to running a business, a great credit score can truly open doors for you. The good news is that small business loans can be a fantastic way to build your credit, and as long as you make your loan payments in full and on time, your credit score should skyrocket in the process, further benefiting you both personally and professionally.
- Monthly Payment Requirement
While some business owners don’t mind taking on a monthly payment, others find it a burden they would rather avoid while operating their business. If you’re worried about what your monthly payment might look like on a loan, check out the Shopify small business loan calculator. You can plug in the numbers associated with your loan to get a clearer idea of the monthly payment before you get too far into the loan process, only to find you can’t afford the monthly payment.
- Plenty of Paperwork
The Balance outlines the small business loan application process, providing a clear idea of what you’re up against as things move forward — and the answer is a lot of paperwork. You should know going in that there is nothing simple about completing an application; it can be time-consuming and frustrating, to say the least. You’ll need to supply information and supporting documentation about your tax returns, bank statements, and other financial assets, and there will be plenty of paperwork to sign along the way.
Many business owners come to find that the benefits of a loan far outweigh any potential drawbacks, especially if their business has plateaued and they need the funds to scale. Many others, though, just don’t want to take the risk of an advance, which is understandable considering that approximately one-third of businesses fail within the first two years, according to Bizfluent. But it’s also important to note that business practice lore greatly exaggerates failure rates.
The best thing you can do is compare the pros and cons of your individual situation with an eye toward your financial goals.
Do you have any experience using a loan to grow your business? Were you able to do so successfully? Did you make any mistakes you’d like to share? Comment with your experiences below.