The Industries Most Likely to Ask for a Business Loan and Why
No matter the source, a business needs funds to not only keep its doors open but more importantly, to grow. What it uses its funds for, however, is another story.
In this post, we’ll review the industries that are most likely to request a business loan and the main reasons why they apply for financing in the first place. Is your industry on the list?
Which Industries Are Most Likely to Apply for Financing?
Lending Express analyzed its data from 2018 to find out which industries are most likely to take out a loan. The stats accounted for over 60 different industries. In the graph below, we’ve selected the top nine:
First Place: Construction and Renovation
According to our data, the construction industry came out on top, with a little over 15 percent of loans facilitated through Lending Express handed out to this sector. Businesses in the construction and renovation industry generally need funds to cover the cost of their equipment – and this particular industry goes through equipment like a bear stocking up for hibernation. Equipment loans help construction businesses to purchase large pieces of machinery such as excavators, bulldozers, and cranes – which certainly aren’t cheap!
With the need for new offices and housing continually increasing, it’s no wonder that this industry came out on top.
Close Second: Transportation and Trucking
The transportation sector is responsible for companies providing services to move both people and goods (trucking). The trucking industry especially is in huge demand, what with consumerism up 3.8 percent in 2018 with yearly spending of $14.1 trillion, those goods have to get from A to B somehow.
51 percent of global retailers now offer same-day delivery, because after all, who doesn’t want their goods to arrive the day of order? With such demanding schedules, the trucking industry is in constant demand for new drivers and trucks, which is why these business owners are pursuing business funding, particularly vehicle loans to cover the costs.
Top Reasons Businesses Take Out Loans
We’ve covered the industries that are most likely to pursue a loan, but perhaps more important is the reasons as to why they need that business loan in the first place.
Many people associate the need for a business loan with a failing business but on the contrary, access to capital is needed for a variety of reasons, most notably, to propel a business to the next level.
We dove into the data we have here at Lending Express for the years of 2017-2018 to break it down for you. Now you can see where other businesses are spending their funds. Here they are, in order…
1. Working Capital
39 percent of applicants take out a loan to cover ‘working capital.’ This means that most businesses are using their funds for materialistic use to cover the finances involved in everyday operations. This is especially beneficial to companies that don’t have stable revenue throughout the year. For example, retail businesses typically sell more during the busy holiday season.
Using funds to cover working capital is best for short-term financing such as:
It’s common for entrepreneurs and business owners to be itching for growth, and how do they do it? With the right building blocks, which includes financing.
According to our data, 20 percent of business owners claimed that their funds were going towards business ‘expansion.’ Everyone knows the age-old adage; it takes money to make money, and financing used in the right way will give that extra push.
Funds for expansion can be used to:
- Hire new employees
- Become a franchise
- Open a new branch
- Introduce a new product/service
- Buy new equipment and more…
3. Cash Flow
Our data found that nine percent of business owners needed funds to cover their ‘cash flow’.
We admit that this is rather vague. It’s hard to decipher exactly what these funds have been used for but what we can say is that keeping cash flow healthy is fundamental to any business.
For seasonal businesses, this can be a tough task when the holiday season ends, and all goes quiet. Getting a loan to help even out cash flow can help businesses to grow throughout the year, especially if the funds are used for marketing and lead generation.
4. Stock and Inventory
There’s nothing worse than running out of stock and being unable to fill customer orders. Cultivating loyal customers is hard enough as it is, but to tell your customers that they’ll have to ‘wait a few weeks’ – or worse – months before they’ll receive their purchase because you ‘sold out’ is inexcusable. Keeping shelves stocked is highly important, which is why nine percent of those who applied for funding, did so to replenish inventory.
5. Renovation and Equipment
The way your desk looks says a lot about you.
If you’ve got papers piled up, old tissues and bread crumbs between the keyboard, then you know that said worker is perhaps a little sloppy. Just as your desk says a lot about you, so does your working space. Your business’s physical appearance should reflect your company’s core values. Perhaps it’s for this reason that eight percent use their business loan for renovation projects. Or it could simply be that a shabby office, warehouse, or run-down restaurant is simply in need of fresh paint.
Same goes for equipment – another eight percent of business owners used their funds to jazz up their equipment. Whether it to be to afford a new piece of equipment or upgrade an old one, most businesses will need to take out some form of an equipment loan at one point or another.
6. Consolidating Debt
Consolidating your existing business loans at the right time can help to lower interest rates and even reduce the size of your monthly payments. There’s also the possibility of being able to borrow additional capital; six percent of businesses applied for this very reason.
Using this data, you can compare your business with those that are most likely to take out a loan, and better yet, you can learn what that capital was spent on.
If you’ve already received a business loan in the past, tell us how you utilized it in the comment section below!
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.