Each business owner these days has an option to choose from a wide range of business loan products—conventional and new age. The small business loan products are offered by n number of lenders in India. They differ in various aspects, such as loan amount, repayment tenure, interest rate, and end usage.
Also, some lenders specify the borrowers on how to use the business loans. These lenders also include specific terms in the lending contract. And if the borrower doesn’t adhere to them, they are penalized for not using the loan amount for the specified purpose.
However, there are several new-age lenders as well in the market that allow the borrowers to utilize the credit as per the business needs. Hence, it becomes essential for a business owner to zero in on a lender that has clearly specified in the contract that the availed loan amount can be used as per the needs of the business.
Having said that, a business owner can use the funds as per his requirements and meet his short-term and long-term financial needs. He can further use the small business loan amount in a smarter way that would impact his business process positively and drive customers and sales.
Let’s take a look at the seven ways a loan for business can be efficiently used.
Table of Contents
Fund Working Capital Needs
It is essential to maintain positive working capital to carry day-to-day business operations smoothly. The business owner may need funds to meet immediate working capital needs of the business. A loan for business enables business owners to fund current as well as future working capital requirements of the business. A large percentage of small business owners in India apply for a working capital loan to improve the cash flow position of their business.
No business can be profitable in the long run without having sufficient inventory. A business should procure additional inventory to meet the demands of stock during peak season. So, a business can avail discounts by purchasing products/inventory in bulk quantity. Many business owners prefer to use small business loans for the same purpose- to buy additional inventory at the time of need.
The latest digital technology enables an enterprise to carry out business activities in an efficient way. It helps in carrying out business without investing much on in-house IT infrastructure. Nevertheless, the enterprises still need to invest in the infrastructure, in terms of equipment and machinery to improve business process and activities. Small business loans can be used to acquire the latest technology and purchase the required machinery. It helps in getting access to technology without affecting the cash cycle of the business.
Expand Business Operations
Many business owners find it challenging to expand their business due to lack of adequate finances at their disposal. However, a business cannot sustain in the long run without leveraging the expansion opportunities. As a result, many entrepreneurs apply for a business loan to leverage growth opportunities. For instance, a restaurateur can use the loan amount to take his restaurant to a crowded or spacious location. Likewise, a retailer can use the credit to set up a new retail outlet at a new location.
Hire Skilled Professionals
While starting a new small business, business owners act as marketers, accountants, and customer service executives. But as the business progress, a need for skilled professionals arises to improve business processes and provide the best experiences to the customers in the long run.
Small businesses and start-ups find it challenging to hire fresh and skilled talent due to limited resources. A small business loan helps the entrepreneurs to optimize his hiring process of trained professionals and expanding existing teams.
Launch Marketing Campaigns
All businesses, regardless of their size, need to launch marketing campaigns to drive leads and sales and promote business and customer loyalty. The business owners have the option to promote his business, products/services, and brands through various channels, such as social networks, search engines, and paid ads.
But business owners often lack financial resources to launch digital marketing campaigns for their business. Or even if they launch campaigns, the funds don’t suffice to sustain the campaign. A business owner can avail credit services and overcome resource constraints to start the marketing campaign.
Repay High Interest Loans
Most entrepreneurs find it difficult to avail a business loan while starting a new business. So, they often avail the services at higher rates of interest or unfavorable terms and conditions. Many entrepreneurs use the funds to repay the loan for business with higher rates of interest. The business owner can refinance a business loan to improve cash flow for his business by reducing the loan EMIs.
In the end, one can conclude that small business loans are broadly divided into two categories- open end and close end. The entrepreneur can use the funds for a specific purpose in the close end and as per the business needs in the open end.
Hence, a business owner can choose as per his requirements to benefit his business. However, the advent of new-age lending institutions has enabled the borrowers to get access to the funds to meet the varying needs of the business.