A small business loan is a financial solution designed for SMEs to cater to urgent business needs. Some of the best features of such loans include minimal documentation and easy eligibility. This makes the application process quick and hassle-free.
If you are an entrepreneur, taking a loan to grow your business can seem scary at first. Also, navigating the maze of different loan types and lenders can be quite challenging as well.
However, taking a small business loan can help you deal with significant business challenges resulting in a high return on investment. Here are six reasons why you should consider a small business loan for your business.
1. Expand your business
If you have achieved a certain level of success in your business, you may start to think about expanding into new markets. There are many advantages of business expansion, such as:
- Attracting new customers: There is always the opportunity to attract a new customer base when you expand, especially if it involves introducing new products and services
- Establishing multiple revenue streams: Business expansion typically allows you to offer various products and services. In doing so, you can diversify your revenue stream, which means that you don’t have to rely on selling one core product or service only
- Increasing brand awareness: As mentioned earlier, you expand the possibilities of reaching a wider audience with business expansion. This can help grow your company’s awareness among prospective and existing customers
- Economies of scale: When your business grows, vendors and suppliers provide great discounts because you’re ordering in larger quantities
However, business expansion is an expensive affair. If you’re strapped for cash, a small business loan can come in handy while expanding your business.
2. Promote and advertise
Studies reveal that SMEs in India reduced mass media ad spends by over 35% and digital spends by 25% in 2020 due to the global pandemic.
During economic downturns, you may also be tempted to cut back on advertising and promotion to save money. However, this can be the exact opposite of what you need to do to survive in the marketplace.
Advertising and promotion share the common goal of driving demand for goods and services. They help businesses establish themselves in the market as viable brands. Also, targeted advertising and promotional campaigns can show your existing customers you have even more to offer, thus increasing their spending and your business’s revenue. Advertisements and promotions can also expose you to new secondary markets that add revenue and possibilities for your development.
Hence, taking a small business loan for advertisements and promotions can lead to potentially transformative returns, ultimately helping you attract new customers and sell more products and services to existing customers.
3. Buy latest equipment
Good equipment is fundamental to the operation of any business. Having up to date equipment will give your business the best chance to increase productivity and revenue. It will also make you more asset-rich in your industry.
Also, your business equipment can be classified as a capital asset, and deduction can be claimed under the Income Tax Act, 1961, which shall be debited to the profit and loss account of the company till the life of the capital asset becomes zero.
While buying the latest equipment may seem to be heavy on your pocket at first, it is indeed an excellent investment with significant ROI for your small business.
If you don’t have capital in hand, it may be wise for you to consider a small business loan to invest in equipment to maintain or grow operations.
4. Manage inventory
Inventory management, especially for a company that sells products, is crucial to the company’s success. If your company holds too much stock on its shelves or in the warehouse, it can become outdated and get stuck with inventory that can’t be sold. If it has too little inventory, then it is risking stock and loss of customer goodwill.
Either problem will cost you money. This is where an inventory management system comes into play. However, the basic problem for most SMEs is they think that they cannot justify the cost. Inventory management systems seem just too expensive.
Hence, it is wise to take on a loan to finance the building of your inventory management system. By investing in an inventory management system, you can have the right products in the right quantity and avoid products being out of stock and funds being tied up in excess stock.
5. Hire fresh talent
Even the best business growth strategies can fail without the team you need to execute them.
Hiring new employees can be a great move. But if you are self-funded or have limited funding, you may hesitate to start hiring, even when you need more employees on board.
Small business loans can be effective to fund the much-needed hires. Having the necessary cash in hand gives you the wiggle room you need when hiring employees and paying for other expenses.
6. Spend on learning & development
With the rising number of SMEs in India, you must do everything you can to stay ahead of the competition. A great way to ensure this is to obtain a business loan for staff L&D.
Any employee who receives L&D training to further their education and skills will perform their job better, leading to increased revenue for the business. Also, training opportunities increase employee retention because people are likely to stay in a position where they feel supported and encouraged. It is estimated that the cost of replacing an employee is higher (150%) than training an employee.
A better alternative is to build the capability internally. It is often cheaper and easier to do so. This applies to all sectors, departments and levels of employees within your business.
To make a business successful, you need plenty of passion, perseverance, and of course—capital. Regardless of the exact reason you are considering a small business loan, the point is this: When all costs are factored in, is the loan likely to improve the bottom line? If yes, then go for it.
Are you looking to finance your small business through quick business loans? Razorpay Capital offers loans for businesses without collateral at competitive rates. Businesses no longer have to wait long periods of time for loans to get approved. Since the whole loan application process is online, the turnaround time is very short.
Loan repayments are very flexible too! Businesses can choose to pay in instalments on a daily, weekly or monthly basis.