Business loans are a natural part of owning a business, with most small business owners taking out credit at some point. Despite business loans being common, many small business owners still see them as a negative and as a sign of a failing company, and some even citing no benefits to taking one out.
At Aurora Capital, we work with a range of businesses and non-banking financial corporations and see first-hand just how advantageous borrowing credit can be – provided it’s used for the right means. With this in mind, we’ve pulled together this list of some of the most important benefits of business bank loans and alternative business financing that you need to be aware of.
1. Build your business credit file
Business finances work in the same way your personal finances do in the sense that you will acquire a credit rating and build a credit history. It’s important to have a good credit score for your business as it’s a sign of how healthy your accounts are looking and how reliable your business is on a financial level. On top of this, it shows potential future lenders and investors how viable your company has been to date, and this can be used to make financial projections moving forwards. The issue is, as a new business, it can be hard to build a credit score from scratch.
One of the major benefits of business loans is that they can help you begin to build a credit file. By starting small and taking out a small loan (or borrowing through a credit card or revolving credit facility), you can quickly build up a reliable credit history. When you continuously make payments and pay back what you owe in full and on time, it demonstrates to future lenders and investors that you’re suitable to lend to, so should the time come for you to need a bigger cash boost in the future, you’ll have the proof that you’re worth the risk.
2. Provide an emergency buffer for unexpected costs
Bills are increasing and inflation is rising, meaning it’s getting more expensive to pay what you need to and save at the same time. Business bills can be costly and can take you off track if you’re not expecting them, so it makes sense to have a financial buffer to soften the blow if something goes wrong. Unfortunately, not every business is in a position to have larger amounts of instantly accessible capital based on their profits alone, but that doesn’t negate the need for an emergency fund.
In these instances, taking out a business loan to cover unexpected expenses could be just what you need to provide the security every business owner relies on. This means if you’re hit with a high VAT bill, need to replace equipment that’s broken, or have emergency cash flow issues, you have the means to see you through, and as long as you can pay back what you owe, you can enjoy the financial benefits of having a business buffer. This buffer will ensure optimal business efficacy and make sure you can pay ongoing expenses and continue business operations without hindrance.
3. Cover your business during financial lulls
Sometimes, business drops. This is expected with seasonal businesses, but other businesses can also be impacted if there is an economic downturn that sees slower sales than normal. This can be stressful for business owners because you might be wondering how you’re going to meet your financial requirements, pay your staff, and pay your suppliers when no one is paying you.
The good news is, business loans are there to help you through these quiet periods whenever they crop up. Alternative funding options like merchant cash advances (where you pay what you owe through an electronic funds transfer on every sale you make) are ideal in these situations and can relieve some of the stresses associated with slow business periods, ensuring you can pay who and what you need to and keep your business running.
4. Develop your business to the next level
Growth requires investment, but this isn’t always readily available. On average, small businesses take around three years to turn a profit, but these first three years are essential for growth. During this stage, you can’t take your foot off the pedal and need to continuously invest to ensure you progress. Most entrepreneurs tie up their own money in their business ventures, but if there’s no more to pump in, or if you have growth plans and can’t reach them from generating money yourself, small business loans can help you get there.
Whether you use the loan to acquire bigger premises so you can increase your operations, or if you invest in more staff to up your production output, a business loan can help take you to the next level.
Taking Out a Business Loan at Aurora Capital
If you’re thinking about taking out a business loan, we can help. We’re on hand to provide you with all the information you need to make an informed decision about taking out a loan, and we’ll take you through the advantages and disadvantages so you can make the most informed decision. We can also match you with the right lender for your needs, taking into account your business plan, personal assets and interest rates.
To find out more about our financing options, get in touch with our expert team.
