What Are the Benefits of a Business Loan?

Running a business is an expensive endeavour, and it can be incredibly costly to get a company off the ground and keep it operating properly.

Hence the need for business loans.

Business loans provide entrepreneurs and business owners with the extra capital they need to be able to do things like improve cash flow, expand operations, fund marketing campaigns and more.

Cash injections, even in the form of loans, often provided via a business bank account provider, can be incredibly beneficial for businesses both young and old, providing a helping hand to keep things going and help them get by until profits increase or they receive more funding.

Business bank accounts to consider include:

1. Anna 
2. Counting Up
3. Tide

 

Top Benefits of Taking Out a Business Loan

 

Business loans are often viewed as a mere method of bailing out companies that are struggling, and sometimes, that certainly is what they’re used for.

However, they have far broader utility than that.

In fact, many savvy business people make use of loans to fund big moves like acquiring other companies or for strategic purposes, like paying off debt or improving credit scores.

How and why different people and organisations choose to make use of business loans very much depends on their unique position in the market in which they’re operating, as well as how well they’re doing, their plans for the future and so much more.

With the wide variety of reasons for people taking out business loans in mind, let’s look at all the potential benefits it can provide both small and large companies.

 

1. It Can Allow You to Start a Business

 

Starting off with, arguably, the most obvious answer, many entrepreneurs take out business loans in order to have sufficient capital to start a business.

Launching a company from scratch is a difficult and expensive process, not matter the industry, and sometimes the best way to be successful is to take out a a solid business loan and feel a little bit more comfortable in your ability to be successful.

Now, if you’re going to apply for a business loan for a brand new company, you’re going to need to be super prepared and have all your ducks in a row. That means creating a detailed business plan outlining your expectations for the future, including your goals, who your target market is and how you’re going to reach them.

These plans need to include details on how money will be spent and eventually recouped.

It’s always a good idea to have somebody with legal and financial knowledge go through your plan before submitting it to make sure that things add up.

If your loan application is successful, you’ll be able to use the money to start and operate your business according to the terms of the agreement, and eventually, once your company is profitable, you’ll be able to start paying it back.

 

2. Business Expansion

 

Larger, more established businesses may apply for a loan for the purpose of expanding operations. This may be an expansion in the form of location – that is, renting out an additional office or shop – or hiring  additional personnel. It all depends on the company.

Business loans aren’t all the same, however, so it’s essential to be aware of the different types and have a good idea of what’ll best suit your and your company’s needs for growth.

Indeed, for businesses of any size, growth is an essential part of moving forward and progressing, and it normally comes in the form of expansion. Since expansion can be a costly endeavour, regardless of the specifics, business loans offer organisations an opportunity to test the waters to show how successful they can be with the right kind of resources.

 

3. Finance an Acquisition

 

Expansion is one thing, but mergers and acquisitions are a whole different ballpark. As organisations grow larger, there are plenty of reasons they may want to acquire other businesses.

A few major reasons business acquisitions take place include general ambitions for growth, talent acquisition, diversification, access to capital, acquisition of assets, tax benefits and more.

Indeed, acquisitions can be incredibly beneficial for growing businesses, and although it can be incredibly expensive at the outset due to the need to pay out large sums of capital upfront (depending on the terms), it has the potential to really pay off in the long run.

That’s why banks offer businesses loans for the purpose of acquisitions, although applications do need to be accompanied by detailed reports of both businesses’ financial well-being and more before they’re approved.

While it may seem like a risky move, and often, it is, taking out a business loan to fund a promising acquisition can be incredibly beneficial in the long run.

 

 

4. Pay Off Debt

 

Paying off debt is one of the top reasons people choose to take out business loans, and there are a few different ways loans can be used to pay back debt.

This tends to be in the form of consistent repayments that eventually add up to a lump sum, getting cash advances on credit cards or refinancing mortgages.

Whatever method you choose to use, having access to capital from a business loan to be able to pay off debt can be not only a huge relief, but it can also have other advantages like lowering interest rates credit cards and more.

 

5. Building Credit

 

For businesses that have poor credit scores, or for young companies that haven’t got much credit at all, taking out a business loan can be a strategic way to build good credit.

Essentially, successfully repaying a business loan in accordance with all terms and conditions tends to contribute to building a positive credit history.

So, if you have the finances to do it, it can be a good idea to take out and pay back a business loan while you’re in good standing so that if you do potentially need to take out a larger loan at a later stage, you’ll have a good credit record.

Indeed, contributing positively to credit records is a serious benefit to taking out a business loan – as long you pay it back properly.

 

6. Buy Equipment

 

For companies that need equipment, taking out a business loan can be a great way to finance that kind of large purchase. Whether you’re buying a whole lot of new office chairs for staff or bulldozers for a construction company, borrowing money from the bank is a solid strategy to invest in equipment that you may not currently be able to afford.

Purchasing equipment by means of a loan can be a great investment in your company since it tends to help improve operations and can ultimately lead to your company being more successful.

 

7. Cover Marketing Costs

 

Using a business loan to cover marketing costs is another way that borrowed capital can serve as a way to invest in the future of your company.

You may not necessarily have the cash in hand to spend on big advertising campaigns, but successful marketing can lead to increases in sales and ultimately, increases in revenue.

Thus, taking a risk and applying for a business loan can result in serious benefits for you company in the future, especially if you’re investing in high-quality marketing.

 

8. For Unexpected Expenses

 

In everyday life, we talk about “rainy day funds”, the money you put aside just in case something unexpected happens and you need to pay for something you didn’t plan on spending money on. For instance, you need to replace your car tyres or your geyser in your home bursts.

In business, the concept is similar, except unexpected expenses tend to be a little more costly than repairing a car.

Most companies don’t have the luxury of having loads of capital stashed away just in case something goes wrong, and that’s where a business loan is not only incredibly useful, but it has the potential to save your business from going under.

Of course, it’s essential to be realistic about what you can afford to repay when taking out a loan, but ultimately, business loans can be a lifesaver when things unexpectedly go wrong.

 

9. Tax Benefits

 

An interesting benefit of business loans can come in the form of tax deductions – in some cases, not all.

Often, the interest paid on business loan repayments is tax deductible, depending on where in the world you are, so this can be beneficial to the company’s overall tax burden, in some cases.

Also, there are cases in which the purchases that are funded by the loan can also be eligible for tax deductions. That is, things like equipment and so on.

Of course, this isn’t a hard-and-fast rule – it depends on the country in question, the bank, the business and the terms of the loan – so make sure to double-check the fine print if this is the benefit you’re hoping to reap.

 

10. Retention of Ownership 

 

For businesses in dire straits, running low on capital and about to go under, taking out a business loan can be the solution, at least in the short term.

There are several ways to try and save a dying business, but making out a business loan is often preferred for a few reasons.

First, unlike with equity funding, owners don’t have to give up any form of ownership, allowing them to retain complete control over the company.

Second, this reduced pressure means that the business owner can focus on the future and continue to grow the company without having to worry about potentially losing their power of decision-making.