Harvest Small Business Finance Through Loans

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harvest small business finance

Want to know more about how to harvest your small business finance? The best way to do so could be through loans. Unless you have a considerable capital backing you up at the beginning of your business, you need a loan. You may need a loan for many other reasons too. But it’s a little different when it comes to considering and actually taking out a loan when you need it for an already operating business VS. a start-up. Here, we will be briefly discussing how can you use a loan to your maximum benefit.

Finance is a big word used to describe the various sources of finance for an enterprise. 

Large companies usually require finance for: start-up costs, eg buying premises, equipment and marketing. Running the organization as well. Includes having sufficient capital to pay employees wages, supplies and utilities on time every month. Financial goals like expanding the enterprise, building a brand, or increasing wealth are also possible through finance.

Harvest Small Business Finance: Reasons

Source: Crash Course

Entrepreneurs may need financing for many reasons. Financing can be needed to expand an existing enterprise or acquire new raw materials and labor. Furthermore, it can be used to pay for advertising and promotions, or pay debts. Some entrepreneurs also use venture capital funding to fund start-ups of their new businesses. Venture capital funding may be used in many ways. Investors usually provide start-up money, and then expect payments from the enterprise years down the road based upon the profits made during the initial years.

Harvest Small Business Finance: How can you benefit from a loan as a small business or a start-up?

Before we go over the methods that most entrepreneurs use to finance their businesses, let’s look at some ideas and options through which you can use a loan to your maximum benefit.

Starting Your Business

First things first, you get the loan to actually open your business and start business operations. Isn’t that obvious? Wasn’t starting a business the whole point of taking a loan in the first place? Well, yes and no. Here’s a thing: because you need to pay off the loan as soon as you can AND drive some ROI, you need to have things straight before you even think about taking a loan or contacting potential investors.

It does not matter whether it’s your close friend or parent giving you the money or you’re taking a loan out of the bank, nobody wants to waste their money and give it away for an unforeseeable future. They need a guarantee that the money will be payed off, sometimes with additional benefits, depending on the source.

Know your future start-up inside out. Have a plan for everything: budgeting, market demand, predictions for the first few months, marketing plan, expertise ect. Prepare a thorough presentation and be ready to answer questions. Especially when dealing with investors. You need them to believe in you and the success of your start up.

PRO TIP: Do NOT take more than you need. Even if you are being offered more, it’s better to just stick to your original amount. Never forget that you need to pay off the debt. Plus, you can always borrow more if you need it once your business takes off.

Use The Loan For Expansion

harvest small business finance
Photo by Frederick Warren

Now, if you are a not a start-up the reason for taking a loan could be because you want to expand your business operation. There are many things that you need to consider before doing so. However, there are some basics like the direction of expansion and by this we mean whether you are expanding locally or globally. In majority of cases, you are going to need to borrow more if the latter is the case. Financing options will be different depending on the direction as well.

PRO TIP: use a loan to improve your business credit score. Your business credit score indicates how well your business is doing, therefore, having a good credit score is absolutely necessary for every operating business. In fact, when applying for a loan or investment, the lender will be checking your credit score to make a decision about whether financing your business is worth it. They will be offering their terms according to what the payment history and overall credit report says.

PRO TIP: You can use a loan to expand both on a local or global scale by opening more stores or offices. Such a case usually needs a considerable amount though so make sure you have a clear plan in mind and the only thing left is getting enough funding.

Using A Loan For Buying Inventory

This one is another top reason why business owners consider taking a loan. Unless you have a drop shipping business or something similar, you need some equipment to open a business. Actually, even then you are going to need something, like a powerful computer for instance. Moreover, if your business operates on a location and in person. You will need to either buy out a location or hire a space. On top of this, equipment is not cheap. Many small businesses take out initial loans only to cover equipment expenses .

As for the inventory, this is true for businesses that reach the peak of their operation during certain season. Especially local small businesses. If you have a skiing equipment business, taking a loan out during summer to prepare for the peak season is a smart thing to do. And don’t forget that you can use the borrowed money to stay updated. Upgrade your old machinery but don’t do this frequently (even if you do it with your own money). Invest in something of a high quality that will satisfy your needs and last for a long time.

Using A Loan To Pay Your Tax

Photo by Towfiqu barbhuiya

Whether it’s an already operating business or a start up, depending on its size of course, taxes can get to the point where you actually need to take a loan to pay them off. The advise here is to again, take out only the amount you need. Here’s a thing about loans and small business in concern with taxes. Use a fix rate loan unless there’s no such a choice to guarantee the interest rate will not change. Especially for a start up change of the interest rate can put your business at risk, so take this into consideration and try to negotiate with your lender.

PRO TIP: Depending on the amount and the lender, it’s smart to maintain the relationship with them. If it’s not a huge amount and your lender is a bank, this is less likely to happen. But if it’s an investor, no matter the amount, developing a strong link to them will only benefit your business. They can introduce you to people you can further expand your business with. Taking more loans will be made easy as well. Think about the future!

Using A Loan In Dire Times

Everyone needs to have a saving in case of an emergency situation. Businesses moreover. There may be so many things that could go wrong all of a sudden. We don’t have to go into details. Nobody could oversee the long term disaster that started in 2019 and forever changed the trajectory of economics and business operations. There could be things like pandemic, conflicts of various types, sanctions, natural disasters or smaller scale emergencies like a machinery breaking down. You need to be prepared and mostly preparations have a lot to do with finances.

Using A Loan To Boost Your Business Activity

Above we have talked about buying an inventory and preparing for the busy period in case of a seasonal business. Having the peak period is super beneficial for businesses. They make most profit during those few months. But it also has its unavoidable downside. And this downside is the non-peak periods. Most small businesses, especially start ups or those that didn’t make much profit compared to their competitors are put at the risk of closing down their business.

There are few things you can do to boost your business activities. Like starting an entirely new branch to fit the slow period market demand. Or perhaps developing an attractive marketing plan that will promote sales all year round. Maybe expanding more globally. All of these could solve your problem but at the same time they need financing. Loan could help you.

PRO TIP: Loan can also help you in various type of promotional activities which can be internal or external. Obvious things like marketing promotion, digital advertising, partnerships and new deals. As well as promoting your staff or making a donation, although the latter is quite unusual way to use a loan, it could still come in handy when necessary.

Harvest Small Business Finance: What Options Do You Have?

harvest small business finance
Photo by Tim Mossholder

There are several alternative financing methods available for entrepreneurs. Two of the most popular business financing options that entrepreneurs are using today are borrowing money from friends and family, and obtaining a traditional bank loan. While friends and family may have money to lend, the interest rates on these loans may be too high for an inexperienced entrepreneur to afford. Banking on your own won’t be easy, either.

One of the more successful forms of external finance is called peer to peer lending. 

The first on the list of options to harvest your small business finance. The basic concept is that a group of financial investors will lend a set amount of money to a startup business for which the startup business relies on paying back the borrowed amount over a period of time. The repayment schedule depends on the amount of capital that has been borrowed and the amount that has been paid back. This method of finance allows entrepreneurs to get the financing they need without having to rely on traditional banks, credit unions, or other outside finance sources.

Capitalizing on the popularity of this option, there are many banks in the US that provide small business financing options on a competitive basis. These banks understand that their traditional customers, small businesses, need additional streams of capital in order to launch their ventures.

The primary benefit of securing financing through a traditional bank loan is the speed with which you receive financing. As long as you have a working business plan and a good financial record, a traditional bank loan should be able to provide you with the funds you need within about two weeks. However, there are also drawbacks to this type of financing for small businesses. Typically, the fees involved in securing a traditional bank loan are high, and in some cases, you might not be able to repay the debt.

An alternative method of small business finance for new firms is to seek financing from an external source. 

1 US dollar banknote
Photo by Annie Spratt

External financing sources offer entrepreneurs multiple benefits. The first benefit is that entrepreneurs can obtain the money they need quickly and easily. Since the funds from an external funding source come from a third party, there is little or no risk associated with securing the funding. Moreover, most external financing sources require very little credit history or any previous financial transactions with your customers.

Another alternative for small businesses seeking finance is to consult venture capitalists. 

The last on the list of options to harvest your small business finance. Venture capitalists typically invest in new businesses, but they do so with a focus on returns. In order to receive high returns, venture capitalists will often require entrepreneurs to operate at a loss for a period of time, often one to two years. Because of this focus on returns, venture capitalists can provide seed financing and / or equity financing to new firms. Although venture capitalists do not provide bank loans, they do offer information and advice to new businesses and can help them negotiate better access to capital markets.

Conclusion

We have covered pretty much everything you need to know to harvest your small business finance through loans. From why is getting a loan a good idea to how you can use it and most importantly what options you have as a business owner. Hopefully you got what you were looking for. Stay tuned for more helpful content in the future.

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