At some point, you will need to access capital to grow or expand your operations through business financing. Taking out a business loan can provide a much-needed capital infusion and can be a lifeline for small and large businesses alike when used responsibly. It can be the fuel your company needs to reach the next level.
It’s important for business owners to understand how business loans work, as taking a loan with unfavorable repayment terms could considerably impair the growth of your company for years. In some cases, borrowing too little or too late can jeopardize your business.
Business loans are complex, sometimes necessitating the services of a business advisory firm in order to choose the right loan and source of funding. So, let’s demystify the process by discussing how business loans work and when taking out a business loan can be worth the risk.
How Do Business Loans Work?
Business loans are a form of financing for commercial businesses that provide financing either as a lump-sum payment or credit line. In exchange for the money, the lender will require repayment of the principal, plus interest and fees.
Depending on the loan repayment terms, you may be required to make daily, weekly, or monthly repayments over a predetermined period of time. The terms of your repayment will depend on the type of business loan and can vary from one lender to another. In addition, factors such as the financial health of your business, credit score, years of operation, and available collateral will all play a role in determining whether or not you can secure a business loan.
What Are Business Loans Used For?
There are several instances where financing your business through debt may be a good idea.
1. To build credit for the future
Taking small, short-term loans can help you build enough business credit for when you need to apply for larger-scale financing. Banks and other lenders prefer loaning money to older firms with years of profitability under their belt. As such, it can be difficult for younger businesses to secure financing without a strong credit history.
2. To expand business operations
You’re hiring new people, and you don’t have enough space. Or perhaps you want to open a new branch. Expanding is often a good idea when your business has positive forecasting numbers. But just because your business is ready for growth doesn’t mean you’ll have the cash on hand to make it happen, making it a good idea to take out a business loan.
3. To purchase equipment
Purchasing the necessary machinery, tools, and equipment can radically improve your business offering, and this can often require you to get a business loan. On that note, a CPA firm can help you determine whether it’s better to buy or lease equipment with a cost-benefit analysis.
Make the Most of Your Loan with Gurian CPA
Accountants do tax and compliance work – this much is obvious. But the best ones do so much more. At Gurian CPA, we can help you get a better handle on your cash flow so you can maximize the value of your capital and minimize your business loan fees. With a cash flow forecast, we can strategize your payments so you can balance your short-term cash needs with longer-term financial goals. Contact us today to discuss how we can create your customized business accounting solution.
