How To Determine if A Loan Is Beneficial For Your Business

How To Determine if A Loan Is Beneficial For Your Business

Loans can be of great assistance in expanding businesses. They can speed up operations, help you work out better terms with suppliers, and simplify handling cash flows. But how can you tell if your company would benefit from a loan?

Before applying for a business loan, you might want to think twice, as it can be risky. You should only take out a loan if your business is experiencing the following situations: 

When Your Business Lacks Working Capital

One thing to consider to know if getting a loan will benefit your business is if you experience a lack of working capital. Check if your current liabilities exceed your assets. You will have to raise money to cover your working capital requirements.

The working capital ratio reflects the business’s cash flow and liquidity situation. It’s calculated by dividing current assets by current liabilities. But remember, as a general guideline, you should only borrow funds when you can put them to use and increase your income. That is how you can cover the interest costs and yet turn a profit in the end.

If you’re starting to notice that you’re turning away good business opportunities because you lack the working capital to fund the project, your business will benefit if you take out a loan at this point.

Once you face such a problem, you must find the ideal lender to suit your needs. You can opt for a traditional bank or lender near you. You can also go for a better option and consider applying for a loan from an online lender like loans.

Online lenders can provide a better loan experience, such as low-interest rates, flexible loan terms, etc. So, before you decide where to get the loan, you must first research and compare your options.


When You Need To Expand Your Business

Another scenario that will make a loan beneficial for your business is when you need to expand your business but don’t have enough funds to do so.

You may be free to spend the money you borrow for your small business expansion as you see fit if you take out a loan. For instance, a loan for growing your small business can assist in covering the price of new hires or rental for a new office or shop.

Loans for growing your business also give you freedom in how and when the money must be repaid. Moreover, getting a loan in this situation benefits your business by allowing you to grow and profit more. As a result, you’ll be able to pay off your debts, including your newly acquired loans, without any problem. 

When You Have a Shortage of Equipment

There will be a time when your business will experience a shortage of equipment. A shortage of equipment can prevent your business from profiting and growing.

Adding equipment is also a part of your business expansion, and you’ll need funds to do that. If you notice that the equipment in your business is making your daily operations a struggle and hindering you from earning significant profit, then a loan will benefit your business.

Don’t miss out on the opportunity to provide your goods and services to more customers and yield more profit. Instead, think of a way to acquire additional funds to afford additional equipment and meet your market’s demand. 

When You Need To Build A Business Credit Score

A good credit score is the ultimate financial goal that every individual and business aims for. It determines how well you manage your finances, especially your debts. It also shows how responsible you are in fulfilling your obligations.

If your business has a lower or no credit score yet, getting a loan will benefit your company. However, if you are taking out a loan to improve your credit score, remember to only acquire a loan that reports to the credit bureaus.

You must ensure the lender submits credit information to one of the three commercial credit bureaus. Do a little research to make sure you’re getting the benefits. Once you begin building your business credit score, you must also make sure that you maintain a good credit history.

Building company credit entails preserving a positive credit history through timely payments, sparing credit requests, and a low use rate. To ensure no problems or errors, you may verify your credit history with the three business credit bureaus: TransUnion, Equifax, and Experian.

Also, remember to be patient. Building credit takes time. That’s why you must start building your credit today. If you need a loan and want to increase its benefits to your business, don’t hesitate to get one in an amount you can afford. 

You Don’t Need To Share Business Profit

If you’re seeking additional funds for starting a new business or for other reasons, one solution that’ll come to mind is to seek financial aid through investors or business partners. However, remember that by doing so, you’ll be required to share your profit with your investor or business partner.

This profit sharing will last a lifetime compared to paying interest rates on a loan, which could end when your loan term ends. Before you seek help from an investor, you should weigh the pros and cons first, including the fact that you’ll need to share your profit with them as long as your business exists.

It could last up to the next generation. In addition to that, having a business partner or investor means you don’t own the company alone. When operating the business, you must consider their ideas, suggestions, and more. It can be a source of conflict, especially if you’re not on the same page.

As a result, your business will take the toll of it and won’t thrive. That’s why most small business owners opt to take a loan rather than acquire funds from a business partner or an investor to avoid such complications. 


Getting a loan can be a beneficial move you can make for your business. Research and study your plans to make an informed decision. Happy Hunting!


Latest Issue

BDC 311 : Dec 2023