Why Smart Entrepreneurs Embrace Loans: 3 Benefits to Consider

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As scary as debt can be, strategies exist to make the most of a business loan. Find out how a loan can help your small business. [[{“value”:”

Being a business owner takes courage. After all, who else but someone with courage would start a new business despite hearing that about 20% fail within the first two years? If you own a business, you’ve probably gone out on a limb and invested plenty of your money, not to mention time. Even if you have the best cash back business card and can recoup some of your start-up cash, being a business owner requires taking risks.

Today, rather than repeat old lessons about the evils of debt, we’ll touch on four reasons a savvy business owner might want to consider taking on a business loan.

1. A strategic investment

Let’s say you own a printing business. Your major competitor in the area is smaller and less established than you but has implemented some innovative ideas that you’re confident will take off like a rocket and bring in cash. The owner of the other business decides to sell, so you take out a business loan to buy their business and have sole rights to the innovative ideas.

A loan can help you accomplish your goals, whether you want to upgrade your equipment, launch a new product line, increase your territory, or buy another business.

2. May be superior to bringing in an equity partner

Imagine you’re starting a lawn care business and have the inside track on a steady gig with an area developer. The developer has promised you’ll start with at least five business parks once your limited liability company (LLC) is set up.

You file your LLC (and don’t forget to open one of the best business credit cards designed specifically for LLC owners) and start purchasing the equipment your new business will need.

However, the cost is much higher than you anticipated. Then in steps your brother-in-law, a guy with more money than he knows what to do with. He tells you he’ll front you the cash you need to buy equipment for a 35% equity stake. He tries to convince you it’s better than taking out a business loan.

You’re not so sure.

You decide that mixing family and business is not a good idea and take out a business loan for the cash you need. It takes you three years to repay the loan. By the end of three years, the property developer has come to trust you, and you will now be taking care of 10 business parks in the region. Rather than handing over 35% of every dollar of profit you earn, it’s all yours.

3. Your credit standing improves

Each payment you make on your business loan is reported to the credit bureaus. As with your personal credit report, your business report shows whether payments were made on time or were delinquent. Here are some of the other things you’ll find on a business credit report:

How many credit lines you haveHow much credit you’re using (and how much you have available)Any bills that have gone to collectionsLiens, judgments, and UCC filingsYour business registrationYour industry classification

Unlike a personal credit report, your business report is available to anyone who requests it and pays a fee.

If you build your credit standing by paying your monthly loan payments on time, you never have to worry about potential clients checking your business credit report. In addition, the higher your credit score, the easier it will be for you to land another business loan if needed.

As a small business owner, you understand the importance of strategic planning. Ensuring that you’ll have the funds you need to make each monthly payment on time is critical to the success of your enterprise. If it sometimes feels like your business is your baby, you should have no trouble nurturing it while carefully guarding its credit.

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