Financing can be key to helping you achieve your business's growth goals. Learn how you can use financing to invest in technology, improve inventory management, and expand to new locations, and which financing options may be the best choice for each venture.
Most small business owners understand that you need capital in order to grow. Whether it’s buying additional inventory, hiring more employees, or opening up a new location, growth projects often require the use of financing. Smart business owners identify opportunities that will lead to sustainable growth and find the right financing option to pursue those opportunities.
Here are three smart ways to use financing to grow your business.
1. Invest in new technology
A good technology investment can substantially increase your business’s output. For example, if you’re using outdated computer hardware or software, upgrading it may allow your employees to accomplish much more during the work day. The more efficient your workforce is, the more you’ll be able to accomplish every day.
40% of American business owners applied for a business loan in 2017 1
Automation of repetitive or time-consuming tasks may be another avenue for achieving growth. According to the Small and Medium Business Trends Report, small businesses that automate their processes are 1.6 times more likely to be growing than those that don’t.2 Investing in automation can save you time, prevent mistakes, and increase your output.
How to finance:
A major technology upgrade will likely require you to borrow money in order to make a one-time purchase. In some cases, an SBA loan may be the financing solution you’re looking for. Because SBA loans are partially backed by the federal government, they may have smaller down payments and longer repayment terms than traditional bank loans. If approved, you can make your desired purchase and pay off the balance on a fixed repayment schedule.
In 2018, the average amount of a new SBA 7(a) loan (the most common type of SBA loan) was $417,316.3
2. Use a business line of credit to better manage inventory levels
There’s nothing worse than having to turn down a customer that wants to buy from you, but for many businesses, this happens all too often. For example, if you sell a product, you may run out of inventory during a particularly busy time. This is when it’s good to have working capital available to replenish your stores and keep business booming. Otherwise, you might be limiting your growth potential.
Seasonal businesses can have wildly different capital needs at different points of the year. If your business generates most of its revenue during one part of the year, you’ll want to make sure you’re prepared to make the most of your busy season. Having access to working capital can help with that by allowing you to hire seasonal workers, keep more inventory on hand, and pay higher bills.
How to finance:
A business line of credit is a great option for short term financing needs. It gives you access to working capital when you need it.
3. Use a commercial real estate loan to purchase a new building or facility
One of the fastest ways to grow your business is by opening a new location. If business is booming in your current location(s), you may have exhausted all of your current potential output there, and it might be time to consider opening up a new location.
Before you do so though, make sure you ask yourself these questions:
Yes or No: Do you have the management and staff required to run a new location?
Yes or No: Have you researched the market and determined that the new location is likely to be profitable?
Yes or No: Will you be able to maintain the same standards of quality and customer service at the new location?
If the answer to all three is yes, you’re likely in a strong position to consider opening a new location.
How to finance:
New buildings are normally financed through commercial real estate loans. Similar to residential mortgages, commercial real estate loans allow you to purchase new property, and then pay back the loan at a fixed rate for a period of up to 25 years.
Every business’s path towards growth is different, but the most valuable growth opportunities are usually the ones that lead to sustainable increases in efficiency and output. If you find the right opportunity for your business, and the financing option that lets you pursue it, you should be on your way to growth in no time.
Readers should consult their own attorneys or other advisors regarding any financial or business strategies mentioned in this article. These materials are for informational purposes only and do not necessarily reflect the views or endorsement of Santander Bank.
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