The backbone of the American economy is made up of small to medium sized businesses. Without these intrepid entrepreneurs, economic expansion and product and service innovation would halt. In order to be successful, many small businesses must acquire a loan to start, expand or revamp their operation.
Small Business Loans Cover Operational Costs
Small business loans aren’t just for startups or young businesses. They have excellent benefits for existing business. For example, a small business loan will ensure that the owner can keep their doors open while staying profitable and also making monthly payments. Sometimes, a temporary loan is needed during difficult economic times. Other business owners may want to expand their business through opening up another location or offering additional services. Still, older small business may simply want to spruce up their location or perform some major renovations. In the end, it is the business owner who will determine how the money will be used. The only catch is that they must be able to show the lending financial institution why the loan is a good idea and how they will pay the money back.
Not all businesses have to beg banks for a loan because many banks aggressively advertise various lending schemes to convince entrepreneurs to utilize their financial services. Keep in mind that from the bank’s perspective, a small business loan isn’t just a one-time transaction because it provides mutually beneficial opportunities for both the bank and company. Of course, banks do earn money from the interest that they charge, but these rates are very affordable. For example, the Small Business Administration (SBA) offers unique business loans to help entrepreneurs get their business up and running. SBA loans offer lower down payments and longer repayment terms, such as 25 years. This enables small businesses to use their cash flow for operating expenses instead of just debt repayment. SBA loans provide almost 90 percent financing and go over 10 million dollars. Best of all, the SBA provides free consultation services to business owners.
Credit and Relationship Building
A small business loan that is paid back on time will improve the business owners credit score and standing with the bank. In fact, a small business loan is the potential start of a lifelong business relationship. By never missing a payment, a business owner can steadily improve their mediocre credit score so that they will be able to secure a future loan with better terms. This will open to the door to future business expansion. However, business owners must ensure that they do not default on their loan, which could damage their credit score and ability to secure a future loan. Still, a business loan is made to the corporate entity, so the owner will not be responsible to repay the loan if the company fails. In the unlikely event of bankruptcy, liquidating the business will help pay back part or all of the borrowed funds.
Overall, many financial organizations offer accessible and affordable loans to small businesses. As an alternative, there are angel investors and venture capitalists who may provide a loan in exchange for partial ownership or a share of the profits.