Very few small businesses are fortunate enough to survive the first few years. An even smaller subset of these fortunate ones, end up growing bigger. So if you are among those lucky ones who are looking to invest in the growth of their small businesses, then there are many banks willing to give out small business loans to credit-worthy business customers.
Let’s evaluate the key reasons that make it a good idea to take loan for business:
1) One of the commonest reasons for looking to invest in a business is to fund expansion plans of the business. When the business is on an uptrend, it makes sense to use the momentum and continue growing. This might require funds to purchase additional equipment, build capacities, etc. A loan can help cover all expansion related expenses without using any of the operating funds.
2) Many businesses need to maintain adequate levels of seasonal inventories to service their customers properly. Business finance specifically for inventory-related expenses can help businesses cater to customer demands without hurting their operating cash flows.
3) The nature of businesses is such that every now and then, an opportunity might come that is just too good to pass. But to make use of those opportunities, funds might have to be arranged quickly. In such cases, taking business loans can help make the best use of the given opportunity if the potential return on investment outweighs the cost of taking loans.
4) Many companies go bankrupt as they are unable to manage their working capital properly. Even in normal course of business, mismanagement of working capital can cause production of companies to come to a standstill. A working capital loan can help get over temporary cash crunches and is an essential part of day-to-day running of businesses.
5) Small business loans can help build good credit history for future. If you’re planning to apply for a larger business loan in India and don’t have strong credit history to report, then it might make sense to take smaller loans in order to build your business credit first.
