Many small businesses take business loans quite often, but they do not utilize them to their fullest potential. Every business owner must know different kinds of business loans and when to take them. This article will discuss common business loans and how to use them effectively.
Business loans are essential for every small business. Most entrepreneurs utilize a business loan to start their business, while some use it to grow their company proactively. Both of these reasons are optimal, but you should never use a loan to pay another loan. Keep this in mind as we discuss different loans that might be beneficial to your company.
Friends and Family Loans
Let’s start with one of the most common loans out there and one that isn’t given by money lenders: friends and family loans. This particular loan can be strategic when starting a business because your friends and family members can easily become an investor instead of a lender. So this can be a great choice, especially if you trust them with your business.
Negotiating for a loan with friends or family members can be more beneficial than asking from a bank or other money lenders. It can give you the flexibility you need for a loan that other money lenders might not give to you. But you should never utilize this loan for paying a debt, as this puts your personal life at risk. Instead, we suggest that you use this if you’re planning to start the business of your dreams. Consider giving a share of the company to your friends or family members instead of outright paying them for the loan.
Small Business Administration Loans
SBA offers various loans to many entrepreneurs. Some of these offers are great for small business owners, especially during the pandemic. They have a low interest rate when compared to banks and other money lenders. Currently, the organization is offering a COVID-19 relief loan at minimal interest rates.
Applying for an SBA loan is as easy as accessing their website and filling up their form. As a small business owner, you can apply for all sorts of loans, but it’s quite restricted if you compare it to loans given by banks or other lenders. They also don’t offer loans that exceed a particular amount, so the loans they offer are limited. However, you can get out of it are lower interest rates that can easily help you grow your company. Consider getting this loan if you need extra funds for your expansion.
Not many business owners know this, but you can actually apply for a mortgage for your business. If you’re planning to get an office space, then this choice is for you.
It’s so much better to pay for a mortgage in the long run because, by the end of your payments, you can own the space. This is better than paying a landlord for an indefinite amount of time. You should look for mortgage companies near you and go mortgage shopping. Look for the best offers that fit your company and its current revenue. By doing this, you can apply for the right loan to help you earn the space you want in the future.
You can even choose to get a mortgage for a residential property, given that you use it for commercial purposes. But you can’t use it to purchase a home.
Small Business Credits (Credit Card Loans)
Almost fifty percent of small businesses rely on credit cards for their day-to-day operations. This number increases as more businesses apply for small business credits because of its flexibility and low cost.
It’s much easier to apply for a business credit card than for you to apply for a business loan. Although credit cards are limited by their given credit limit (which is smaller when compared to business loans), they are customizable. The more you use your credit card, the higher the possibility of getting a higher credit limit.
In some situations, small businesses rely primarily on their credit cards to get them going. However, some use it sparingly, only using it to pay for outings and team meals. We prefer you to do the latter when you get a credit card for your business. Think of this option as a supporting loan instead of a primary loan.
The Optimal Way of Using Business Loans
We’ve indicated the different ways you can use each of the business loans on this list. However, there is one principle you should consider if you want to use your business loans optimally, and that is to make loans proactively.
If you have a business goal in mind, you should consider getting a loan to achieve it instead of waiting for your company to hit the red and get a loan to keep you afloat. Although SBA loans are great for this purpose because of their low-interest rates, we don’t suggest it. Instead, use business loans to achieve a goal for your company. Using it that way, you can grow your company instead of waiting for it to go bankrupt.