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Are you looking to take out a business loan? This will always be met with mixed opinions and while it is not always a great idea to take out a loan, there are definitely certain situations in which taking out a loan can be a great idea and will contribute to the success of your business.
If you think your company is ready to grow and expand, but you don’t have the capital to do so, then a loan may be your only option. Here, we are taking you through the different situations in which taking out a loan is a great idea.
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#1. You Want to Expand to New Locations
Is your business property space bursting at the seams? Is there physically no room in which you can take on new staff, even though this is what the demands of your business requires? Then it sounds like you have outgrown your current office space and need to relocate to a bigger space.
This could also apply to other businesses such as retail stores or restaurants where you have too many customers in your space. This is actually a good problem to have as it most likely indicates that your business is doing very well and you are ready to move to a bigger premises.
However, just because you have the business coming in, does not always mean that you have the cash needed on hand to make this happen.
In this case, you may need to take out a loan to finance the move. The upfront costs of moving offices or adding a new premises can be big and a loan can cover this cost to allow you to expand your business and help it grow.
Before taking out a loan for this reason, make sure that you take reasonable steps to measure potential revenue changes that will come from this expansion and will this be enough to both cover your loan costs and make a profit.
#2. Build Credit for the Future
If you are planning heavy expansion of your business in the upcoming years, it is a good idea to start building credit now for the future by taking out smaller loans.
Young businesses tend to have difficulties when qualifying for loans, especially when you have no credit history. A good way to do this is to get a bad credit loan from a trusted company.
So, if your business needs to build up its credit rating, this is the perfect way to build up your credit for those bigger loans at a future date.
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#3. Your Business Needs New Equipment
For many businesses, at some stage it will be vital to upgrade their equipment to improve their services or production. Most businesses will require some type of machinery to either make a product or provide a service and this can be a large upfront cost to finance this new equipment.
It is important here to first separate what is a necessity and what would simply just be nice to have for your business as this can be a large cost that you won’t want to undertake if you don’t have to.
#4. Purchasing More Inventory
One of the biggest expenses for any business is inventory. It is important that when you have a lot of demand that this inventory is kept stocked up, however, this can be hard if you want to buy a large amount of inventory before you are seeing any profit.
This is particularly true for seasonal businesses when you may need a larger inventory at certain times of the year, for example, during peak tourism seasons.
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#5. You Have A New Business Opportunity
Sometimes, an opportunity presents itself that is just too good to pass up and, in this case, you may need a loan to finance it. This could be for ordering bulk inventory at a discount or finding a bargain on a new retail space.
When this happens, you will need to evaluate the return on investment versus the cost of the loan and how much revenue you can make through this opportunity. If you think that the return on investment will outweigh the debt, then a loan is a great idea.
#6. You Need to Employee More People
The need to hire more people is another good sign for your business as this means more people are looking to purchase your product or hire your services.
A great way to keep your business competitive and innovative is to invest money in talent when this hiring decision will directly mean more revenue, if this loan is going to initially pay someone’s wages, then this is going to ultimately improve your bottom line and make the risk worthwhile.
Looking for more business and finance tips and information? We have a whole section just for this. Click around and find the answers to the questions you need to have answered.
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