Predicting Patterns: When Should Entrepreneurs Take Out Loans?

When you first begin a business, it’s likely that you work to grow it organically, as much as possible. This prevents you from taking on excessive debt that could prove fatal to a fledgling business. As your business matures and grows, however, you’re likely to find that a major roadblock between where your business is now and where you want it to be is an influx of capital. When this occurs, it becomes a question of when, not if, you will take out a loan. To help guide you in this process, then, here are a few signs you might be ready to take out a business loan.

You Need More Inventory

If you’re expecting a major spike in business, such as during the holiday season, it’s important to have the inventory on hand to accommodate this demand. However, if you currently operate with only a small amount of free cash flow, coming up with the capital to spike your inventory can be difficult. If you’re confident of the future demand, though, utilizing a loan to purchase the inventory can be a great decision.

You Need to Grow

If your business takes place in a physical location, there may come a time when that particular location becomes too small for the demand you’re experiencing. If that occurs, you can choose to either expand your current location or move elsewhere. In either case, these one-time costs can quickly overwhelm any cash-on-hand that you may have. To avoid depleting your cash reserves, then, you can take out a commercial loan to ensure you have room to grow.

You Need to Build Credit

Big dreams take big money. If you have big dreams for your business, you’ll likely need big money at some point to make them happen. Before you’re approved for a large loan, though, lending institutions will want to see evidence of a strong business credit history. In order to establish this history, then, you can take out smaller loans, use the capital from those loans to grow your business incrementally, then take the history of those loans to your lending institution when it’s time for “the big one.”

You Need Equipment

No matter what type of business you operate, you will have equipment needs at some point. Business equipment helps you to operate more effectively and efficiently, growing your business in the process. By securing financing for this equipment, you can hold onto your cash reserves and help build a solid financial history, all while obtaining what you need to help your business thrive.

Don’t Wait

Though you should certainly be cautious when it comes to taking on debt, don’t let the prospect of debt itself prevent you from making purchases that will help your business grow. Delaying certain purchases could have a disastrous effect on your bottom line, leading to stagnation or even shrinkage of your business. When your business has a need, consult some trusted advisors, take a close look at the numbers, then take the plunge without looking back.