Securing a business loan can be an important element of finding the cash flow that is needed to expand your company. Many times, the money for growth is not immediately available from inside your company and cash needs to be invested now before a return can be realized from this activity. Business loans can be the vehicle that helps your company get where it wants to go.
There are a number of things a growing company can do with the cash flow from a business loan. You can...
1. Invest in new product innovations.
A cash infusion from a business loan can be used to fund the research and development of new products to expand your offerings. It can also be allocated to purchase new equipment to manufacture it. The business loan can be used to build inventory to stock and sell for future customer purchases.
2. Purchase order financing.
If the new products are not being produced internally, you may have to pay a deposit before another company makes them, which can affect your cash flow.
Business loans can be used for these required upfront payments. Business owners need to determine how long it will take to sell this new inventory and get paid when deciding how much of a loan they need to acquire this product.
3. Expand your marketing strategies to get more customers.
Business loans can be used to support an expanded marketing effort to help get new customers or to enable existing ones to buy more new products.
For example, money can be allocated to fund online advertising, search engine optimization, trade shows, or a sustained content marketing campaign. Remember that with any new initiative, this will typically require two to four months before a sustainable financial return can be achieved.
4. Expand your staff.
New team members can help grow the services you offer or better leverage the expanding company. Typically, you need to hire these team members before they can generate more revenue.
When you borrow, make sure that whatever you are investing this loan in generates enough cash flow to be able to pay back it within terms.
Note: Like other investments, business owners should expect at least a three to six month investment in these "people costs" before getting a financial return.
5. Build facilities or rent more office space.
Business loans can be used to buy real estate for your office or for construction costs to build out a new space as you expand. If you are moving to a new place, make sure that the additional cost enables revenue growth that will eventually pay for the changes.
6. Provide cash flow for accounts receivable financing.
Costs for these sold products and services may have to be remitted before the customer pays for what they purchased. When you sell to more customers, there can now be more people taking longer to pay their invoices (up to 90 days).
A business loan can provide the cash flow necessary to keep paying for the people and inventory that is needed to generate new sales. Getting a business loan to finance accounts receivables is a good short-term fit as long as sales are going up.
7. Refinance higher cost debt.
Business loans can also help to consolidate external business credit card debt accrued over time.
Remember, a business loan can be a financial instrument to get the cash flow you need to grow your company. However, when you borrow, make sure that whatever you are investing this loan in generates enough cash flow to be able to pay back it within terms. Getting a business loan to cover losses when there are no projections that increase company profit in order to pay it back is not a good financial practice. Always map out a business loan repayment plan that can be financially supported by company revenue targets.
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