When most people think of a small business loan they think of their local bank or the Small Business Administration.
Unfortunately, it's become more difficult than ever to secure traditional small business loans to actually start a business. The good news is there are alternative lenders out there that are targeted toward lending to small business owners.
The question then becomes when should business owners apply for a small business loan. The answer depends on a few financial factors as well as what type of loan they are planning on securing.
Traditional Banks vs. Alternative Lenders
For example, if you want a traditional small business loan from a financial institution you may need to wait until you've got enough financial stamina to show them. We know this is ironic and even somewhat backwards, but this is the reality we are dealing with when it comes to small business lending.
While it's never been easy to secure a small business loan from a bank, it got especially difficult after 2008. Lenders want to know you're good for the money, and when you are in the beginning stages of a business things are just too rocky for them to be willing to take a risk on you.
In this case most start-ups begin by using up credit cards or getting loans from friends and family. They may even find alternative ways of making supplemental income they then use to invest in their business.
Now, when it comes to alternative lenders you have a few more options. These lenders don't just look at your credit history they also look at current cash flow. With that being said, here are some instances when you may need capital in the form of a small business loan.
Cover Start-Up Costs
There are businesses, such as online ones, that don't require much money to start. When I began my own business all I needed was a computer, an internet connection and my time.
However, this is not the case with hands on businesses like restaurants, stores or anything that requires inventory. This also isn't the case if you need staff from the get-go.
This is usually the time when businesses take out their first loan in order to actually get off the ground.
Businesses both big and small sometimes take out loans to make sure they can cover payroll for the month. This is especially true when things are tight. This is also helpful when you're planning on bringing on staff and don't want to tap into the business cash flow.
Some businesses take out loans to pay for marketing campaigns. The idea here is the campaign will bring in more money to the business, meaning they'll be able to pay back the loan and make a profit.
Cover Expenses During Slow Times
There will inevitably be moments in your business when things get slow. This can make it difficult to cover expenses and make it through to the next month. With a small business loan you can have a safety net for times like this.
Expand Your Business
There will hopefully be a time in your business when you are ready to expand. The only problem here is most businesses don't yet have the working capital to do so. This is when small business loans come in handy because you can secure the working capital you need to grow to the next level. This will allow you to grow without depleting your cash reserves.
Small business loans with affordable rates can be a secure way to get working capital in your business. It's like the old saying goes, "You have to spend money to make money." Everyone from small businesses to large corporations take advantage of lending in order to grow and expand in a sustainable fashion.