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How to Determine If You Need a Business Loan

Once you throw it out to friends and colleagues that you need a business loan, it usually comes with mixed signals from different parties. While some will encourage you to push your business forward with a loan, others might picture it as an invitation to the end of days. 

The decision is, however, left for you to make. And it has to be an objective one. A decision that will be the best for your company in the long-run. If you aren’t sure whether a loan is the best thing for your business at the time, here are a few signs to determine if you need a small loan for your business.

MUST-READ: The Ultimate Guide to Getting a Business Loan In Nigeria.

5 Ways to Determine If You Need a Business Loan

  1. Workplace expansion.
  2. Future High-scale loans.
  3. Essential purchase/inventory.
  4. Payroll and recruitment.
  5. New opportunities.
need a business loan

1. You need to expand your workplace

Picture your workspace. Is it comfortable at the moment? Does everyone get their creative and physical space to work their magic for your business? Or do you envision utter chaos? Your workers bumping into each other and the newly employed worker setting up by restroom. This is great because it shows that your small business isn’t so small anymore. You are beginning to outgrow your current workspace with the number of employees added to your team. Now you need a bigger office.

If you do not have enough resources to finance this move, it might be a great time to apply for a loan. A new space costs more and there will be moving costs, new furniture, and décor.

This move should also be a calculated one. There has to be a balance in your move and your profit. Ensure that in the next few months after getting a new space, you can repay the loan and still make a substantial amount.

2. You want to apply for future high-scale loans

Perhaps the reason for your hesitation at the moment is because you envision yourself taking a bigger loan in the nearest time. Well, taking a smaller loan increases your chance of getting the bigger loan you envision. This is because most lenders will be skeptical about approving a huge loan to a small business. However, when you take out a small amount and payback on time, you’ve established a credit-worthiness that gives you an edge.

With the initial small loan, you will create a relationship with your prospective lender. A relationship that will be built on mutual trust and will make it easy to get your business a higher loan.

Note: Don’t ask for a loan that you cannot repay. Failing to meet up with a deadline will only jeopardize any chance you have of asking for any loan.

3. Need to make essential purchases/Inventories

Creating the right product or service requires a lot. Some of which are machinery and equipment. Purchasing these items in bulk can help create a smooth workflow and increase production. If you’ve been thinking about buying these items but you lack adequate funding to push through, now might be the best time to apply for a loan.

Let’s imagine a delivery business that started out with one van. Due to expansion, you realize that the one van isn’t sufficient anymore. You realize that a second van, will not only make the workload easier but also get more deliveries done. Which of course translates to bigger business. This is an investment to your business because this same van can stand as collateral for a future loan. So it’s important to only list the equipment necessities when going to take a loan. You don’t want a liability on your hands.

With inventory, it can get harder to purchase when the market is slow for your business. Especially if you survive on the profits. This is when you need an extra loan to help you kick off the profits that you’d require.

4.  Solve payroll and recruitment needs

Just like inventory and equipment, human resources are also vital to a company. Let’s use the delivery business example above. When you started out new, you may have been in charge of the books, production, customer service, and delivery. But recently, you’ve been focusing more on investors and the customer base keeps increasing that you cannot solely handle all departments. This might be a great sign that you need a loan.

With hiring just one delivery man, you have created time to take care of other business needs. And these needs signifies growth. The loan can cover payroll over a few months until you’ve acquired enough profit to incorporate the new employee.

5.  A new opportunity comes along

Sometimes, opportunities come knocking. These business opportunities might come in forms of a big contract. One that you haven’t had since the inception of your business. For instance, your construction start-up gets a contract to push the building of a new hospital. You as the owner may not have the resources to cover all the costs but you know well that after the job is completed, it will provide the profit, network, and portfolio you’ve been hoping for to get to the next level. This might be a good time to take out that loan to fund the project. Who knows when an opportunity like this may present itself again?

Conclusion

There might be other reasons that’ll motivate you to take a loan for your small business. However, note that the returns you get from your reason must outweigh the loan you’re planning to acquire. This way you can clear your debt and still have enough profit to even put back in the business.

Building a solid business requires effort, labor, guidance, and lots of help. This is why we at Glade are dedicated to offering small businesses in Africa, the help and guidance they need to reach their desired spot in the market. 

We have loan experts who provide you with the essential funding to expand your business, acquire materials, and implement staff payroll. 

Learn more about Glade HERE.

[We’re happy to respond to any comments you might have about your business.]

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