Nov 23

How businesses utilise loans

Almost all successful businesses will get to a turning point in their development where they will need to take out a loan of some kind. There are numerous different offerings available for all types of businesses requiring all nature of funding. This includes unsecured business loans, specialised ‘merchant’ loans and even specially tailored short term finance offerings, similar to personal loans like payday loans.

Sometimes funding is needed as part of planned expansion and business development and this can come in the form of ‘rounds’ of funding or loans as and when they are needed to top up cash reserves. However, there are also times where businesses will need to account for unplanned events and instances such as damage or seasonal changes such as quiet periods.

Because there are so many different purposes for which business loans can be utilised, it is important that applicants and their businesses understand the nature of each type of loan and whether or not it is for them, their business and their specific set of circumstances.


Unplanned Business Expansion

This is almost always a positive period for any business. The excitement associated with expansion is one of the best aspects of running a business of any sort. Unplanned expansion of a business may require additional stock, more staff and bigger premises to come with surges in demand and the requirements of customers. It is imperative that the business in question is able to keep up with demand and satisfy customers, leading to continued progression and business growth.


Stock and Retail Expansion

Selling items of any nature, one of the biggest challenges that retail businesses face is being able to keep up with demand as well as payments and invoices. Therefore, there will almost certainly be times where more stock and products are required before payments have come in. whilst the payments due will indeed cover these payments and more, without the money, they will be unable to purchase the goods.

Therefore, a business loan is often the best solution. An advance on the amount needed to purchase the additional stock to be repaid over a number of months allows the retail business in question to make the necessary purchases and repay at an affordable rate upon receiving their dues. There may also be times where invoices and payments are up to date but where the business needs to make further purchases due to demand and an increase in custom.

The profits from subsequent sales will account for the additional expenditure but the money for purchasing is needed upfront in order to proceed. Again, an unsecured business loan, repaid over the course of a number of months or merchant loans paid as a proportion of monthly card revenue are often the best solutions to this issue.


Increases in Staff

Another way in which businesses of all sorts find themselves expanding is through increases in staffing and staff numbers. However, as wages need to be paid, advanced funding is often needed to cover the initial recruitment and pay of staff. Therefore, a business loan acts to tide the expanding business over until they are able to pay the increased number of staff comfortably themselves.

In addition, there are often occasions where businesses need to increase seasonal activity; for example, around Christmas, Easter and Black Friday. With this being the case, there is often the need to increase marketing budgets and this is another area where business loans are available in order to fund expansion.


Covering for the Worst

Inevitably, there may be times where businesses experience severe damage, perhaps as a result of flooding, break-ins or fire damage. In such cases, it is important that whilst waiting for insurance companies to cover losses and the cost of getting the business up and running, that the company in question is able to access funding whilst waiting on their insurers. For example, the business in question may have fallen victim to a fire and need to secure an empty property to prevent break-ins.

There may also be prolonged periods of quieter business and in these periods, it is important that a business does not go under. Being able to pay and retain staff is crucial to ensure the business can remain on the path to prosperity and keep the staff members who are at the heart of every business. A business loan can therefore be utilised in order to pay wages and cover costs such as rent and bills whilst sales pick up.

This is sometimes the case for smaller businesses during the traditionally quieter summer months and following the Christmas and New Year period.

It is important though that a business does not borrow more than they are able to afford in repayments. Many business loan companies do however carry out affordability and credit checks to reduce the likelihood of this.


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