Why Loan Purpose Matters

The purpose of taking out a business loan will vary for each business. There are many different reasons you may want to take out a business loan. Your business loan could be used for cash flow management, new opportunities, or enhancing your existing operations.

 

When you look at taking a business loan you need to clearly define your purpose in how you will use the funds. Having a clear purpose for the loan proceeds assists a lender in determining the risk characteristics for the loan and the terms for the loan. Knowing what you want to use the money for assists the lender to understand your business and create the best terms available.

 

Here is a list of some of the primary reasons for business loans:

 

Cash Flow Management
• Invoice and Purchase Order Factoring
• Increasing Inventory
• Partner Buy Out
• Unforeseen Emergency
• Payoff or Consolidate Existing Debt

 

Businesses can make use of cash either to convert non-liquid assets into cash or to save on existing loan payments. Increasing sales levels are the goal but the cost can entail an increased need for cash. You may need to increase inventories to handle higher demand or use factoring to convert existing order flow into cash that you can use to fulfill orders.

 

Businesses may have a need to buy out a partner and loan can spread the financial commitment over an extended period of time. Existing debt can be refinanced to reduce interest rates or improve loan terms.

 

Businesses may have unforeseen emergencies take place. Businesses could have equipment break down unexpectedly or have unexpected expenses like a major increase in supplier costs.

 

New Opportunities
• Expansion
• Improvements
• New Equipment
• Acquire a New Location

 

Opportunities are the life blood of any business with expansion breathing fresh new possibilities. New improvements and new equipment can create more effectiveness that will make the business more efficient and profitable.

 

A new location may also be just what your business needs. You may want to enhance or expand your existing space or select a new location nearer to your major customers. You may want to add new locations as your business grows.

 

Enhancing your Existing Operations
• Advertising
• New Equipment
• Improvements

 

You have built a solid business that is successful. You want to do even better by improving your existing operations. You may look at expanded advertising like a new website or cooperative advertising with non-competing businesses. Equipment eventually wears out. Replacing that equipment can lower energy bills, increase production, and speed order flow. Your business has many improvements you can envision as you grow meaning a business loan may be just what you need.

 

If you Decide to Get a Business Loan

 

There are many options for business loans. You can go to your local bank or you can go direct to a business that specializes in lending to businesses just like yours. Banks tend to have time intensive stringent lending requirements and may have terms that can hinder your flexibility for growth.

 

You can also go to a business like Advance Funds Network where you can work with people that understand what you are trying to accomplish and know from experience the best ways to get you there. Which option you select for your loan you will want to make sure you find the best quality loan available and these are some of the factors to consider:

 

• Speed of approval and time to receive the funds
• Loan amount available
• Terms and interest rate of the loan
• Understanding what the loan will do for your business and learning what
the appropriate terms are
• Availability of knowledge people in your loan area that know your business
• Qualification requirements to learn best how to frame your loan application

 

Loan applications and borrowing can be an intimidating experience. You know your business needs and what you want to happen with your business to make your dreams take place. To prepare for the loan process, clearly frame the purpose of your loan before you apply and you can be ready and prepared for taking your business to the next level.