Even business owners need a little help from time to time. Keep reading for 7 reasons why you should apply for a small business loan.
There are more than 30 million small businesses in the United States alone. And globally, that number is growing exponentially by the day.
But no matter where the businesses are, they all had to start from the ground up, finding the funding they needed to bring their vision to life.
As an aspiring entrepreneur, you’ve already figured out what you want to do and the type of business you want to run. But how do you move beyond the theoretical stage and turn your ideas into a fully operational business?
You need money.
Though it’s tempting to rely on your savings, taking out a small business loan is often the better choice. Here are a few reasons to consider this method of financing rather than draining your personal bank account.
1. You Still Have Living Expenses
It’s okay to use your savings to help cover some of your business’s expenses. But that doesn’t mean you should drain your savings account.
After all, you still have living expenses to cover and those savings need to stick around until you really need them.
Taking out a small business loan will let you keep your savings for a rainy day. Think of it as a way to completely separate your business from your personal expenses. You’ll be able to use your savings to pay for your personal needs and use the loan to cover your company’s costs.
2. They Have Lower Interest Rates
Believe it or not, many small business owners use their credit cards to make purchases or to help fund their business. And since the average interest rate is around 16.7 percent, that means you could be paying hundreds of dollars on interest alone each month.
Loans from a bank or designated small business lender have much lower interest rates, saving you thousands over the course of the loan.
And the less you pay in interest each month, the more money you can throw at the loan principal. This means you’ll be able to repay your business loan faster or, at very least, free up capital to spend growing your business.
3. You Can Use Them as You See Fit
Most business loans are restriction-free loans. This means you can use them however you need to as long as you’re using the loans for your business.
Use the money to cover payroll expenses, to buy furnishings, or to purchase inventory when you’re running out of products. Or split the loan up to cover the costs of multiple business-related purchases. It’s up to you.
Just make sure you’re not using the money for your personal expenses.
4. No Worrying About Profit Sharing
Many entrepreneurs and new small business owners believe the only way to get funding is to attract investors. And while this can certainly give you the money you need, it’s a slippery slope.
Investors want a portion of your profits in exchange for backing your business. Though you’ll likely retain controlling interest in the company, it can eat into your bottom line.
With a loan, you’re given the money you need without the loan eating into your profits. You’re still required to pay it off in full by the end of your loan term, but once it’s paid, you’re good to go. You’ll owe nothing else to the lender.
Investors are a long-term commitment and that commitment can cost you.
5. Only Borrow What You Need
There’s no hard and fast rule for how much you need to borrow when you take out a business loan. In fact, you’re free to borrow however much or little you need as long as you qualify for the loan in the first place.
Every business’s needs are different. It’s best to take some time to figure out exactly how much you need to borrow before you apply for the loan. Check out this useful tool to help you better figure out your needs.
6. Small Business Loan Interest is Tax Deductible
As a business owner, you’re responsible for your own taxes. And the more successful you get, the higher your tax bill will be each year.
Deducting as many expenses as possible will reduce your liability and make tax season more bearable. You probably already know that you can deduct your standard business expenses, commercial rent payments, and utility costs from your taxes. But did you know you can deduct interest paid on business loans?
By doing this, you may end up saving hundreds of dollars each year. And you can only deduct the interest from business loans.
Credit card interest, personal loan interest, and lines of credit from family members don’t count.
7. Clear Qualifications
Every lender will have different qualification requirements for their loans. But they always outline exactly what they’re looking for. And you’ll know what those requirements are before you even apply for the loan.
Keep in mind that meeting the requirements does not always guarantee that you’ll get the loan. Lenders issue money at their discretion. If they feel that your business is a good fit, they’ll give you the loan.
But if they don’t or have concerns about your industry, they’re free to deny your application.
Don’t panic. Even if you’re denied a loan from one lender, there are others you can reach out to. Be persistent and you’ll get the funding you need.
Getting a business up and running takes money. But that doesn’t mean you have to find the money on your own. Partner with a small business loan provider and fund your business the easy way.
Once you have the loan in place you’ll be able to grow your company and bring your dreams to life. But there’s more to running a successful business than finding funding. Check out our latest posts for current trends and stellar tips on keeping your business growing and thriving.
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