At some point in the life cycle of a business, it will likely need a loan. Business loans help fund the growth of small business entities or fill in some financial gaps. Many entities provide small businesses with loans. The US Small Business Administration provides loans and helps build the capacity of the small businesses they assist.
Is it normal for a small business to need a loan? Yes. Small and big businesses alike will often rely on loans to fund their growth and provide stability, especially when markets are volatile. Many financial institutions engage in making loans to businesses of all sizes. There is a multitude of reasons a business may seek a loan. Here are some of these reasons.
To Build Creditworthiness
Businesses of all sizes can apply for a small business loan to build creditworthiness. To get a loan, you must prove there is a high likelihood of repayment. Therefore, obtain a small amount of financing to establish a track record of meeting your financial obligations. Then, the next time you require a business loan, you may qualify to apply for a higher amount. Small businesses can contact MCDC for assistance on how to apply for a business loan and other resources necessary to establish that track record.
To Meet Their Financial Obligations
Often, a small business will apply for a business loan to meet some of its operational obligations like paying suppliers, landlords, or employees. According to Nerdwallet, only 48% of small businesses in the US can finance their obligations from their operations. Therefore, over half of all small businesses will need a business loan. Some qualify while others do not, which causes many small businesses to fail before their third birthday.
In some instances, businesses of any size will require a loan to grow from one level to another. Business loans provide additional capital that enables the business entities to invest in more inventory, branches, technology, or employees who can help them to move to the next level. Depending on the level of competition or the market the business operates in, a business loan for growth may be inevitable. Cash availability, whether invested, earned, or borrowed allows a business to grow faster allowing it to support the employees, suppliers, and owners.