May 14, 2024

10 Small Business Loan Benefits You Might Not Know About

There are an increasing number of competitive loan options on the market offered by various business financing lenders, making it a good time to find small business financing options that best fit your needs.

Whether you're looking for a startup business loan, a business line of credit, a working capital loan, or other financing options for your small business, there are some great options that can provide you with the extra help you need to get your business off the ground. Here's a thorough look at ten small business loan benefits you might not know.

The Top 10 Business Loan Benefits

1. Launch Your Business

One of the greatest advantages of small business loans is that they can give you the initial cash flow you need to start that business you've always dreamed of. Small business loans can be used for everything from equipment financing to operating expenses and can be an excellent alternative to using your personal credit for financing.

If you're ready to start your business but are short on cash, a small business loan can help you bridge the gap. In some cases, you may get approved for a significant amount of money, allowing you to open for business without worrying about how you'll pay for initial startup costs.

However, you shouldn't borrow more than you need, or you'll steer your business into a cycle of debt that can be difficult to escape. In many cases, it's best to wait until your business is well established before looking into a larger business loan to cover the more substantial expenses a growing enterprise faces.

2. Expand Your Business Operations

One of the most notable benefits of a business loan is that it can allow you to expand your business operations. With working capital loans, you can expand to new markets or geographical areas without resorting to a personal loan.

3. Build Your Business Credit

Credit markets have been tightening recently, making traditional bank loans harder to come by. While financial products like car loans, home loans, and personal financing may be more difficult to obtain or rely on a higher credit score, there are still plenty of small business loan options available.

With these loans, whether from online lenders or conventional financial institutions, you can build your business credit while securing the funding you need for your small business.

4. Purchase Equipment

Chances are your business needs equipment to operate, but because equipment is fairly expensive, it can be hard to afford. However, a small business loan can cover the cost of new equipment so that you don't have to take away funds from other areas of your business. If you have outdated equipment, it can also provide you with the funds to upgrade it.

An SBA Express loan can be an excellent loan type for a business that needs to purchase equipment critical to its operations. While you can raise the cash required to build your infrastructure through other loan or lender options like revenue advances or merchant cash advances, these can have significant downsides. SBA Express and other SBA loan programs typically have more attractive loan terms for business owners than those offered by traditional bank loans.

5. Purchase Inventory

If your business relies on primarily providing goods rather than services, you'll be looking at inventory costs at some point. Even if you're operating a licensed franchise, you'll still be expected to purchase your own inventory, whether it's hats or hamburgers.

Additionally, if you have a seasonal business, you may want to use a loan to purchase inventory. For example, let's say that you're a swimsuit retailer and earn most of your revenue during the summer months. Using your loan, you can invest in your inventory in the winter to prepare for the busy months ahead.

6. Save on Taxes

There's no denying that business taxes can get expensive, but you must pay your taxes on time. Otherwise, you'll risk your business's financial health and overall future. Interest on most business loans is tax-deductible as a business expense. However, unlike programs like the Employee Retention Credit, this deduction only reduces your taxable income, not your overall tax bill. If you have questions about the best way to deduct interest expenses, it's best to consult a tax professional for advice specific to your situation.

7. Develop a Relationship With a Lender

When you take out a small business loan, you're forming a relationship with the bank or credit union that's providing the loan. Prompt and regular repayment of your original loan (and paying the entire loan amount within the specified term) will improve this relationship, making it easier to secure financing or lines of credit in the future.

8. Solve Cash Flow Issues

If you have cash flow problems, a small business loan can be an excellent solution. It can be particularly useful if your cash flow is sporadic or inconsistent. Instead of drawing on personal sources of wealth like savings, CDs, or mutual funds, you can rely on business financing to maintain a positive cash flow, afford consistent expenses, reinvest in your business, and provide a buffer against financial challenges in the future.

9. Cover Emergency Expenses

Every business is prone to emergencies, but borrowing money from a lender can help you survive tough times. The COVID-19 Pandemic took everyone by surprise, and many small businesses were facing serious cash shortages. While that's an extreme example, other unexpected emergencies can occur at any time.

A small business loan is better than a personal loan to cover these unforeseen events, even if you have bad credit. Most banks will only offer a secured loan requiring collateral like your personal car or house to people with credit scores below the “good” threshold.

Small business loans can still be available to you even if your credit isn't the best—though you will typically face higher interest rates and additional fees.

10. Sustain Your Business During Slow Times

If you have a seasonal business, a small business loan may come in handy during your slow season. Often, seasonal businesses utilize their financing for costs such as:

  • Payroll

  • Equipment upgrades

  • Inventory

  • Marketing expenses

Top Small Business Loan Options

If you'd like to reap the benefits of a small business loan, consider how you'll use it. Maybe you hope to open more locations, get your business idea up and running, or upgrade outdated equipment.

Once you evaluate your business plan, it'll be easier to determine the small business loan option that you should pursue. For example, a short-term loan may make sense if you'd like to borrow a specific amount of money upfront and pay it back in less than a year.

On the other hand, long-term loans are beneficial for business owners with longer-term financing needs who can handle making loan payments over a longer period.

Other business financing options include:

  • SBA Loan Programs: The SBA provides loan approvals to businesses that can't get approved for funding elsewhere. Their most popular programs include SBA 7(a) loans, 504 loans, and disaster loans. Although the SBA guarantees a portion of each loan, the financing is actually facilitated through a lending partner.

  • Equipment Loans: If you need funding for an equipment purchase or repair, pursuing an equipment loan is a great option.

  • Business Bank Loans: As you likely know, banks provide personal loans, but they're often fairly expensive and come with a long application process.

  • Loans From Alternative Lenders: At Fora Financial, we provide business loans to small businesses spanning a variety of industries. If you'd like to learn more about our business funding options, click the link below to get your free quote!

Conclusion: Support Your Business With a Small Business Loan

Now that you know the benefits of a business loan, do some research and compare all your options. Before you move forward with a loan, read and agree to the fine print, then come up with a plan for how you'll repay it. If you're ready to learn more about business loans, click the link below to receive your free quote from Fora Financial!

Since 2008, Fora Financial has distributed $4 billion to 55,000 businesses. Click here or call (877) 419-3568 for more information on how Fora Financial's working capital solutions can help your business thrive.