In the competitive world of business, it’s important to find ways to foster growth and expansion for continued success. Business loans are a powerful tool to leverage this success and secure a competitive advantage in the market. With the right strategies, you can determine business needs, prioritize goals, and direct your business loan effectively. Then, with a clear strategy, invest capital into the areas outlined in your business plan.
A business loan secures the necessary capital so you can focus on growth without worrying about finances. How do business loans work? Keep reading to gain a comprehensive understanding of business loans, what they can be used for, and how to best implement them for strategic expansion.
How Do Business Loans Work?
Before discussing the strategies your business can implement to effectively use a loan and achieve success, you first need to understand what business loans are and how they work. These loans are a form of financing used by businesses to cover business expenses, increase operations, or expand into new markets. They can be obtained through financial institutions such as credit unions, banks, or online lenders.
There are a variety of loan types so you can choose a loan that is suited to your business’s particular needs. These funds can typically be borrowed as a lump-sum payment or as a line of credit. A lump sum enables your company to make a specific purchase up front and then pay back the loan over a set term at a fixed interest rate.
A business line of credit allows you to borrow various amounts periodically. It’s a flexible solution so you can borrow money as you need it and only pay interest on the funds you spend. Which type of loan is right depends on your company’s unique situation and goals for growth.
Businesses can choose from a secured loan or an unsecured loan. Smaller businesses tend to do well with secured loans. Though you will be required to offer collateral, they can provide smaller businesses, which typically have less credit history, with much-needed capital at lower interest rates. More established businesses may prefer an unsecured loan, as no collateral is needed.
Common Uses for Businesses Loans
Business loans can be used for virtually any business expense. For instance, you can use your loan to cover day-to-day operating costs, increase output, or expand into new markets.
To use your loan effectively, identify your top goals and what needs must be met to reach them. Do you need to repair, replace, or upgrade machinery? Is there an increased demand for your product? Would hiring new staff better meet these demands? Does your business need more supplies? Is it time to take your online company to a brick-and-mortar store? Or are you looking to expand into new markets through franchising?
Define these goals as a part of your business plan. Detail actionable strategies to meet these goals, and calculate the amount of capital necessary to fund these ventures.
To get started, let’s look at some of the more frequent uses for business loans:
- Startup costs
- Cashflow for everyday expenses
- Inventory purchases
- Equipment purchases
- Maintenance and repairs
- Commercial real estate or remodeling
- Hiring staff
- Upgrading technology
- Marketing and advertising
- Business franchising
- Opening a new location
- Business acquisitions
- Debt consolidation or refinancing
Assess Business Needs
Before allocating loan funds, assess the areas where your business has the most needs. This can better ensure you are directing funds where they are most needed for growth and expansion.
Conduct a needs assessment by reviewing current processes and finances and surveying valued employees about company operations. Is there a gap in efficiency, customer support, or marketing strategies? How can these be improved? Is it time to upgrade technology for better optimization and customer experience? Does your company need to hire a marketing agency to better reach your target audience? List these needs and rank them by importance.
Once you have assessed your needs, list the resources necessary to reach growth goals. You may need to hire more staff or increase inventory. Look at internal information about the company. Outside data, such as market research and surveys, are also helpful in determining your target audience’s needs and how your company can meet them.
Use this information to gain a competitive advantage in the market by using your loan to direct additional resources toward addressing customer needs.
Best Practices for Effectively Investing Loan Funds
How can you best allocate funds to foster growth and secure success? Follow these tips below to determine the most effective ways to invest your loan funds:
Create a Business Plan
Identify expansion opportunities, such as opening a new location or starting a new product line, and create a plan for expansion. Then, calculate the estimated cost and timeline. Make sure to also include projected revenue to determine whether you are on target.
Effective investments aim to secure future growth, not just keep operations surviving from day to day. Invest in goals that are growth-driven.
Choose the Right Loan Type
As we mentioned, there are a variety of business loan types. Look at the terms, conditions, repayment plans, and interest rates of each loan option and choose which works best for your company. This will largely depend on your particular goals and financial needs. Choose from a lump-sum loan for a specific purchase, a line of credit for periodic borrowing, or a vehicle and equipment loan to get your business on the road.
Focus on Revenue-Generating Investments
Look at ways you can invest in projects that generate revenue. Increase operations through upgraded technology, new machinery, website optimization, or marketing that attracts new audiences and increases conversions. This will sustain your business long-term and help you pay back your loan faster.
Take your business to the next level with MHV. Our business loans help you focus on growth. Talk to a lending expert today.
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