For a business, the influx of cash at the right moment can be the difference between its success and failure. Growing and scaling a business requires capital as much as it requires hard work and determination. If you are an entrepreneur and small business owner looking for funds to support your growth-initiative, small business loans are a convenient option to do so in 2023.
Whether refilling inventory or buying machinery, with a business loan, you can finance your immediate expenses to support your business and pay back the loan amount over time without hassle. In this blog, we will go over some of the best ways to utilize business financing to grow and scale your operations.
What Are Some Benefits of a Business Loan?
Before moving on to ways you can use a small business loan, let us understand some benefits of a business loan for owners:
1. Availability of Unsecured Business Loans
The biggest benefit of debt financing is that it is available as unsecured business loans. So, you do not have to pledge any collateral against the loan amount. As a result, small business owners maintain the ownership of assets or property they may use as collateral for availing of secured loans.
2. Multi-Purpose Loans
The next reason you should avail of a business loan is that there are no restrictions on how you want to use it to grow your business. You can use the loan amount to invest in assets, expand, and even use the loan amount as working capital to support daily operations.
3. Tax Benefits
Another benefit of a business loan is that the interest you pay is tax deductible. You can write off interest payments as business expenditures under the Income Tax Act 1961.
How to Use a Business Loan?
Here are some ways you can use a business loan to grow your operations:
1. Increase Production
To meet the ever-increasing demand for your product, you need to ramp up your production. Therefore, you need new machinery and more raw materials, which is costly, especially for small businesses and startups. However, with a small business loan, you can finance the purchase of machinery and raw materials without diminishing your profits. Instead, new machinery will help you optimize the production process, reduce production costs, and boost profits.
2. Source Inventory
Whether you are a wholesaler or retailer, having a huge inventory to meet the demand of your customers is the primary condition to earn repeat business. For example, if you expect high demand for a product during a season or festival, you can take a business loan and use it as working capital to purchase inventory in bulk.
3. Introduce New Product
If your existing products have earned your customer’s trust, it is the right time to capitalize on them and introduce a new line of products. A new product can also be the key to bringing new customers to your brand. With debt financing, you can fund the product design and development process and easily take your new product to market.
4. Break into New Markets
Entering a new market is a great way to expand your business, keep competition at bay, and grow your profits. But to open a new store requires not only investment in land and construction but hiring new talent, creating a new supply line, etc. which is a costly affair. Luckily, you can use a business loan to fund all these expenses and get some edge over your competitors.
5. Settle Outstanding Bills
Having too many outstanding bills in your books not only affects your profit but also hurts your business’s creditworthiness. You can use a business loan to settle any outstanding inventory payments or utility bills in full and improve your business’s financial outlook.
An unsecured business loan could help you buy back the lost equity if you acquired funds from investors by diluting your equity. Using a business loan, you can reclaim full ownership of your business and its decision-making process.
6. Take Your Online
Industrialization 4.0 is all about the digitization and use of the Internet. If you were late to join the e-Commerce bandwagon, a business loan could help you take your business online. Once you secure funding from the lender, you can use it to build a website and mobile app.
If you plan to sell products, you will also need a logistics partner or set up your delivery team. Again, a business loan will provide you with the necessary funds to help you establish your online store and delivery system.
7. Invest in Marketing and Advertising
If you rely solely on word of mouth and referrals to bring business, chances are you are missing out on a significant chunk of your target market. So, use a business loan to run marketing campaigns via email, social media, and paid online ads.
An active marketing campaign increases your brand’s presence bringing in new customers. But, at the same time, it helps you connect with existing customers earning their loyalty.
8. Debt Consolidation
If you have borrowed money from multiple lenders and are now struggling to manage different EMI, you can use a business loan to refinance existing debts. It allows you to consolidate all your debts and pay only a single EMI monthly to settle them. As a result, managing your debts becomes easier, and you can focus on expanding your business.
How to Apply for a Small Business Loan?
Here are detailed steps for applying for a business loan:
1. Assess Your Fund Requirement
Before applying for a loan, you must consider why you need a business loan. Once your goals are clear, you can assess how much debt financing you need to achieve those business goals. Then, you can compare interest rates and tenure from different lenders to find the best option.
2. Prepare Your Loan Application
Next, you need to prepare your loan application. Most lenders will require you to fill out an application form and provide documents like income proof, balance sheets, tax returns, etc. To secure funding, you also must provide a detailed business plan to lenders so they can assess the risk involved in lending money.
3. Apply for Small Business Loan
Applying for a business loan no longer requires you to go to the lender’s office. Instead, you can apply for a loan online. You can apply for a business loan on the lender’s website or request a call-back over the phone.
4. Use the Loan Amount
Once the lender approves your application, you will receive funds in your bank account. You can use the loan amount to support your operations and grow your business. But it is essential to stick to your business plan and keep track of your spending to use the funds wisely. Also, pay instalments without delay to avoid penalties.
Wrapping Up
Small business loans are perfect for owners to secure funding to grow their businesses. The year 2023 is your turn to take your business to new heights with Tata Capital. We offer unsecured business loans of up to Rs 75 lakhs at attractive interest rates. We also offer an overdraft facility, so you repay only the loan amount you use. Visit our website to know more.
15 November 2024
6 mins read
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