When to Take Out a Small Business Loan

One of the most significant challenges facing small businesses today is not knowing how to acquire a small business loan when it is needed, and when the right time is to take out a loan.  Fortunately, there are many banks today that are looking to provide a variety of loans to small companies, and there are several situations when taking out a loan is the best decision that a small business owner could make.  

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One situation when taking out a loan from a bank would be if the business is looking to expand and needs more space or equipment to do so.  While most people would think that it would be a better idea to wait until the expansion of equipment could be purchased with cash, using financing from a bank is often the best option.  This will allow the Small Business Loan to expand while receiving a relatively low interest rate on the loan.  Any additional cash could be used to reinvest in other business needs.

Another time that it would be a good idea to take out a loan would be when a business needs a line of credit.  Many businesses are able to attract customers by offering competitive repayment terms that range from giving customers up to 90 days to make a payment.  While this may increase sales, it can be a drain on cash because a customer may not make a payment for a long time after a product or service has been sold.  With a line of credit, a business will be able to borrow money whenever they need to.  Then, when they receive money from their customers, they will be able to pay down the loan balance.  Banks typically will provide funds to a borrower equal to seventy or eighty percent of the business's accounts receivable balance.

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