Five Ways to Accelerate Business Growth with Small Loan
The idea of applying for small business loans, when discussed with peers, invites a wide array of responses. While some cite cautionary anecdotes and are sceptical about acquiring funds from banks due to the long wait times involved and other reasons, there are others who have had positive experiences and may have suggestions on the best sources of SME loan.
While all reasons may not be convincing enough to borrow for a business project, there are times when SME finance becomes helpful due to its distinct advantages. If you have drawn out a plan for the expansion of your venture and have credible calculations to support the move, all you need is adequate funding for the job. That’s where a small business loan helps.
In the age of digital technology, smart entrepreneurs are approaching FinTech companies for small business loans, and here are some reasons that encourage them to apply:
1. Extend Your Outreach to New Locations
Startups and SMEs with limited funding usually start with small office spaces or may work from home. As their work begins to increase and new employees get hired, the need for bigger premises also arises. For those who operate a restaurant, retail store or any customer-facing business it is important to have a premise that can accommodate their customers comfortably.
It is of course a matter of delight to realise that there is a growing demand for your products and services, and the business is ready for expansion. However, it may not always mean that you have adequate funds to make it happen. Your revenue earnings are often utilised for regular operations and to open a branch or expand your current space, you may have to apply for an SME loan.
Digitally operating non-banking finance companies (NBFCs), also known as FinTech companies, are . They can be approached for micro, small and medium enterprise funding, or MSME loan, without pledging any collateral.
Tip: Before applying for the loan, it is advisable to measure the potential shifts in revenue that could result from expanding your business space. Will you be able to cover the payments on your loan and still make profits? You can work on a revenue forecast with your current balance sheet to see how this move will affect your objectives.
2. Purchase New Equipment for Your Business
This is another reason why a business might require a small business loan. You do need machinery, new software and other equipment to manufacture your products and optimise your services. Investing in new technology can go a long way in improving your productivity and may help you implement a cost-effective production process.
Tip: Although taking a loan for equipment is a great idea, do make sure that you spend on things that you genuinely need. Procuring funds from external sources for any equipment that are “desirable” but not “indispensable” can impact your bottom line, particularly in the early stages of your business. For example, you may like to purchase a trendy pool table for the coffee-break area to impress your employees. However, if the staff strength is low, it may not be a good idea to borrow money for such a product, at least for the first 3-4 years. If investment in the recreation room is on your mind and your budget is small, it is a better idea to begin with comfortable seating, healthy snack options, stimulating décor, free coffee and a relatively affordable option like a carrom board.
3. Hire New Talent
As an enterprising individual who has formed a start-up, you may be handling several tasks. With the increase in work, however, managing marketing, customer service, order management and bookkeeping, while also concentrating on your revenue generating activities can become difficult. If the extra duties begin to wear you and your small team out, it may also impact your business in the long run. This is when you need to hire better skilled people to manage these aspects for you.
Tip: Applying for SME finance is a good idea if it can help you hire new talent who in turn can make your business more productive. Once again, do the necessary strategic calculations and ensure a link between the hiring decisions and the growth in revenue. If having an extra pair of hands at work will help you focus on the big picture and has the potential to offset the cost of procuring the loan, then do not hesitate to apply for a small business loan.
4. Buy More Inventory
Inventory is a huge expense for any business involved in the direct production or supply of tangible goods. You need to replenish your stocks regularly to keep up with the demand for your products. This can be challenging at times when you have to buy large quantities of inventory before getting a return on the investment. The purchase of extra stocks is especially harder for businesses that have seasonal cycles. They need loans to buy inventory before they can earn from it.
Tip: To evaluate your decision of taking an MSME loan for this purpose, it is good to create a sales projection based on the previous years’ sales figures in the same months. Compute the cost of the loan and weigh it against the amount procured from the projected sales to see if it will be a wise financial choice. As an extra precaution, be conservative in your calculations because sales can vary from year to year.
5. Build Credit for Future
Based on long-term business projections, some of you may be planning to apply for large-scale financing in the future. The case for such a loan can be built by starting with a small, short-term SME loan. Such a step will help you to solidify your business credit rating.
Businesses that do not have a good credit history can face trouble in applying for loans when they need extra funds to fulfil bigger visions. If you take a smaller loan and make regular, timely payments, it will help you to be eligible for the funding that you will need in the next few years.
Tip:The handy tip here is not to take a loan if you cannot afford to pay back. Even one delayed payment can spoil your business credit history and harm your chance of qualifying in future.
FinTech companies have opened new doors for small business finance and loans without collateral. If you know well how to use the borrowed capital and are confident about your ability to pay back, SME loans are a great way to accelerate business growth.