Taking out business loans is a big responsibility that not many companies want to take on. They may be apprehensive about the added burden it can bring to their finances or might not want to spend so much time applying for the loan.
However, this loan is more valuable than you think. With its ability to improve your cash flows, business loans can boost your company’s productivity and enable its growth to achieve long-term success. But before you take out a loan, one of the key decision-makers is to be sure of why you need it in the first place.
One of the most important questions to ask before getting a loan is, what can you use your business loan for?
6 Ways How to Use Your Business Loan Effectively
Running a business entails sufficient funds to operate smoothly—and taking out a loan can help. Knowing how to use your business loan can support you in maximizing its use and boosting operations. If you’re unsure what you can use a business loan for, check out the list below.
- Payroll and inventory
Your employees are the bloodline of your business. They ensure that your company functions properly and that it can thrive. Meanwhile, your inventory is one of your primary sources of income. As such, you must have enough capital to sustain these investments to keep your business afloat.
These short-term investments are crucial to your business, so you must ensure they get the proper attention and funding.
Funding payroll and inventory management is one effective way to use your business loan. A reliable payroll system will help guarantee that employee compensation is fair and on time. Besides payroll, a proper inventory management system enables you to meet customer demands with enough stocks and without overstocking.
- Marketing and advertising
According to a study by World Bank and its partners, there are around 334 million businesses worldwide, which is a lot. With such a high number of competitors, effective marketing has become more necessary than before.
In today’s saturated marketplace, you need all the help you can get to make your brand stand out. A solid online presence, effective advertising campaigns, and the use of various marketing channels are all essential for your company to shine among the competition.
However, these tools and strategies may be challenging to implement without sufficient funds. That said, investing in your marketing efforts is one of the most effective ways to use your business loan. With your loan, you’ll have the funds to apply successful marketing strategies to help you build a loyal customer base and increase profits.
- Employee hiring
Whether you’re hiring new employees due to a lack of team members with specific skills or replacing departing employees, it’s important to onboard new hires quickly and efficiently. Your employees are essential to a smooth-running business, so filling these critical roles is vital.
Even so, hiring new employees can take up too many resources. You must have enough capital to cover recruitment costs, added salaries, and training expenses. But you can use a business loan for onboarding new hires easily, allowing you to fill in the gaps and drive growth within the organization.
- Expansion or acquisition
Often, growing your business means expanding it. When you grow your business or acquire another company, you increase market share, improve profitability, and achieve long-term growth. These plans typically involve entering new markets or launching new offers. However, these initiatives require a significant amount of investment to execute successfully.
Due to this concern, taking out favorable business loans from a lending company can help you grow your business. This loan provides the capital to purchase new equipment and address your growing customer base. Additionally, it allows you to acquire a complementary business to expand your product line, diversifying your revenue streams by taking on a new target market.
- Debt refinancing
Another excellent way to use business loans is to refinance your other debts. This strategy involves replacing an existing debt obligation with a new one carrying more favorable terms, such as lower interest rates or longer repayment periods.
Refinancing your other heavy debts can help you improve your financial position. For instance, you can leverage lower interest rates to reduce monthly payments, freeing up cash for other business initiatives. On top of this, it lets you improve your credit score by lowering default risks. In turn, lenders may give you even more favorable terms the next time you take out a loan for your business.
- Daily expenses
Running a business involves numerous costs, many of which are unavoidable. You’ll have to pay for utilities, rent, and office supplies—and that’s just the beginning. These expenses are necessary to keep your organization running smoothly and maintain its day-to-day activities. As such, you must have enough cash to cover all these costs.
You can use a business loan to manage your cash flow and ensure you have enough money to cover daily expenses when they are more significant than income. Doing so helps you avoid disruptions to your operations that can lead to further income problems.
Leverage the Power of Business Loans
Many companies may have reservations about taking out a business loan due to the added financial responsibility it brings. However, these loans are more than financial obligations. They can help your business achieve its goals and success.
By giving you sufficient funds and proper cash flow management, business loans can enable your organization’s growth and improve financial standing for its longevity. If you’re looking for expert guidance in this field, contact Zenith Capital! We offer hassle-free SME loans in the Philippines to help your business succeed.
Rizza Templonuevo is not just an accomplished finance professional and business leader, but also a loving wife and a dedicated mother of two. With a passion for helping businesses grow and thrive, she brings her extensive knowledge and expertise as Vice President of Zenith Capital Credit Group Corporation to help countless SMEs and corporations across the Philippines access the financing they need to succeed.
When she’s not busy with work, Rizza enjoys immersing herself in the worlds of fashion and social events, as well as traveling to new and exciting places.