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How to Utilize SBA Loans for Business Success
January 29, 2018
How to utilize SBA loans for business success

How to Utilize SBA Loans for Business Success

SBA loans can be advantageous for American small business owners who are not able to obtain financing through other means. With lending programs like the 7(A), the U.S. Small Business Association acts as guarantor on loans provided through commercial lending partners.

To qualify, however, entrepreneurs must prove that they have exhausted all other financing options. Given the many hoops to obtaining an SBA loan, business owners who succeed should invest the funds they receive wisely. In this post, we’ll provide examples on how you can utilize SBA loans for business success.

Buy Equipment

It is often wise to put the proceeds of a loan towards revenue-generating activities. That way, profits can go towards repayment. Purchasing equipment is one way of using a loan to grow your business. Purchasing additional pieces of equipment can help you increase productivity, especially if these future profits exceed the cost of servicing the loan. Upgrading equipment, or improving infrastructure, can also yield similar benefits.

Purchase Inventory

Leverage is a financial services concept that means using borrowed money to generate a greater profit than can be otherwise achieved. The more products you have, the more you can sell. If your revenues are limited to how much inventory you can afford with existing funds, an SBA loan could allow you to purchase more than your business’s normal capacity.

Consolidate Debt

If your business is struggling to pay off credit card debt or other balances, an SBA loan can help consolidate payments and lower your interest rates. Since SBA loans come with a government guarantee, interest rates are typically close to, or based off, the prime rate. Therefore, lower monthly interest payments can help improve your business’s overall cash flow.

Manage Cash Flow

Even thriving businesses can struggle with cash flow management. Even if revenues are high, customers may have a certain length of time before they must pay, they could be late making payments. In the meantime, suppliers and staff will be expecting payment from your business. So, if your business needs help with working capital, you might benefit from revolving credit through SBA’s CapLine loan programs.

Invest in Marketing

Using a loan wisely doesn’t mean that you’re restricted to revenue-generating activities. Sometimes, it pays off to invest in less tangible benefits, such as better brand recognition through advertising or other outreach activities. The benefits of marketing and brand promotion can be difficult to quantify, but can have long-lasting effects on your business. If you want to spread the word about your business, consider using your SBA loan to invest in new marketing strategies.

Conclusion

Note that there are some restrictions on how SBA loans may be used.  Loans obtained through the generic 7(A) program can be used for anything from equipment to paying down debt. The CDC/504 program, on the other hand, is earmarked for fixed assets like real estate or equipment that also serve certain policy objectives. Small business owners should articulate the needs of their business before applying, and choose the most best loan for their situation.

Fora Financial

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.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].
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