Should Your Business Take Out a Loan for Hiring Employees?
Since it can be costly to find and onboard new employees, you may wonder whether you should take out a business loan for hiring costs. The answer depends on your unique business, current financial situation, and long-term goals. Let’s take a closer look at the cost of hiring new workers as well as the pros and cons of doing so.
What Is The Cost of Hiring New Employees?
There’s no shortage of expenses that come with hiring new employees as a small business owner. To start, you’ll have to pay your internal HR team and invest in external HR resources if you need additional help.
In addition, you may be on the hook for other expenses, such as
- Virtual hiring events
- In-personal career fair costs
- Job board fees
- Recruitment technology
- Marketing to ideal candidates
- Pre-hire assessments
Add background checks, onboarding, and training into the mix and hiring new employees can become expensive very quickly. According to Glassdoor, the average U.S. employer spends about $4,000 to hire a new worker. Fortunately, applying for small business financing can help you afford these expenses.
What Are the Benefits of Taking Out a Loan for Hiring Employees?
If you move forward with a small business loan for hiring costs, you can reap the following benefits:
1. Increase Your Bottom Line
By hiring talented employees to work for your business, you can earn more money and increase overall productivity. Depending on who you hire, they may sell more of your products or services, lock down loyal customers, or come up with innovative ideas for your company.
2. Free Up Your Time
The reality is that you can’t do everything, which is why hiring competent team members is crucial. If you feel overwhelmed and prefer to focus on the big picture instead of mundane tasks, hiring new employees may be the way to go. It can free up your time and allow you to focus your effort on growing your business.
3. Avoid Overworking Other Employees
If your employees have too much on their plates, they’ll likely become overwhelmed. By hiring others to complete some of their tasks, you’ll enjoy happier, less stressed employees. This can create a better company culture and help with recruitment down the road.
4. Expand Your Offerings
The right employees may bring new knowledge and innovation to your business. For example, if you own a salon, hiring an esthetician will give you the chance to add skincare services to your current menu.
What Are the Drawbacks of Seeking a Loan for Hiring Employees?
Before you take out a business loan amount to cover hiring costs, consider these drawbacks:
1. No Guarantee That Employees Will Be a Good Fit
If you use a business loan to hire employees, you should know they may not stay with your company long-term. You may believe a candidate will be an asset and later find out that their personality clashes with your culture or they don’t have the skills you thought they did.
2. It’s Possible That You May Over-hire
When it comes to hiring, quality is more important than quantity. By using your business loan for growth strategies, you may accidentally hire too many people. Over-hiring can lead to chaos and productivity issues.
3. You May Overlook Financial Priorities
Chances are that you have other expenses you want to cover aside from hiring. If you take out a business loan for hiring costs, you may not have the working capital to buy new equipment, move into a new building, or pay for other important expenses.
4. It May Lead to Significant Debt
If you’re unable to repay your term loan, your business may acquire significant debt. This can make it difficult to maintain your business’s cash flow and take care of other financial needs.
How to Get a Business Loan for Hiring Employees:
If you decide that you’d like to pursue a business loan for hiring costs, shop around and consider all your options. You can find these loans at banks, credit unions, and through online lenders. In addition, SBA loans are available to businesses that have exhausted other traditional financing options.
In addition to a completed loan application, most financial institutions will ask that you provide documents such as:
- A business plan
- Tax forms
- Recent bank statements
- Business licenses
They may also pull your credit score to determine if you’re a risky borrower.
Once you get approved, make sure you read your loan agreement thoroughly. Don’t sign on the dotted line unless you’re confident that you can responsibly repay the loan. If you determine that you’ll have issues paying it back, think of ways to reduce your hiring costs, hire employees in stages rather than all at once, or delay your hiring goals until you improve your finances.
Conclusion: Using A Business Loan for Hiring Costs Can Increase Growth
If you don’t have the cash to pay for employee hiring costs upfront, business financing may be a good move. However, you should be selective about who you hire. Create a comprehensive interview process that increases your chances of good employees and reduces your risk of turnover.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.