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Could Business Loaning Help Your Small Company Thrive?

The practice of business loaning is common in the financial and business sector. It's especially beneficial to small companies — both for those that are just starting out and for those looking to scale up operations. Truth be told, no growing business can achieve success without the necessary financial resources. According to data from the U.S. Bureau of Labor Statistics, roughly a fifth of new businesses close shop within the first two years, while nearly 50% fail during the first five years. Up to 65% of businesses don't make it past the first 10 years. Only a quarter of new businesses manage to make it past the 15-year mark. Therefore, as a small business owner, it's important to consider how business loaning can help keep your business thriving. Below, we take a look at the top benefits of business loaning and how to increase your chances of successfully securing a loan.

Launch and Expand Your Business

As you likely know, there are several steps involved in launching a business. The easy parts include conducting market research, writing a business plan, and choosing a business name. The tricky part is funding your business. In your business plan, you should have all the required financial details, including how much you need to get your business off the ground. If you don't have the full amount you need, the easiest way to get the funds is to borrow capital. This is where business loaning comes in. You can potentially get approved for the amount you need to cover all the startup costs for you to open your business today.

Once your business has been operational for some time, business loaning can also come in handy by facilitating the expansion of your business operations. For instance, if your goal is to launch a new product or establish a presence in new geographical areas, a business loan can cover all associated costs. That said, keep in mind that you should only borrow what your business needs and can afford. One of the factors that can contribute to the failure of a business is being caught in a cycle of debt. Therefore, you should pursue a business loan only when it makes financial sense to do so.

Cover Essential Business Expenses

Your business has a lot of expenses to cover to operate smoothly. For instance, your business probably needs well-maintained equipment to operate. Equipment tends to be one of the largest expenses businesses face, so it's not surprising that many companies rely on equipment financing. A small business loan can help you spread out the cost of big-ticket items over time. You can also use a small business loan to purchase inventory. This is especially beneficial when you need capital to replenish your stock during slow sale periods. Having extra funds means you can purchase the inventory, so you're fully stocked by the time the busy season starts.

If you have cash flow problems, you'll still be able to meet your financial obligations with the help of a loan. Cash flow gaps can make it difficult to perform operations smoothly on a day-to-day basis. For instance, if you don't have a consistent cash flow to pay for rentals or buy office supplies, this can be disruptive to your business. On the other hand, business loaning ensures you can maintain a positive cash flow and be able to meet recurring expenses, even when you're dealing with financial challenges. A business loan can keep you afloat while you wait for profits to pick up. If you're a seasonal business, you can use your financing to cover costs such as payroll, inventory, and marketing expenses. You also won't have to worry as much about emergency expenses, such as repairing a crucial piece of equipment when it breaks down.

Build Credit and Relationship With Lenders

There are many benefits associated with having a good business credit score. A higher credit score makes it easier to access credit in the future. In addition, should you need to apply for a loan down the line, you're more likely to be offered better terms and higher borrowing limits. Not only that but you can also get better terms from suppliers. All of these benefits stem from the fact that a good credit score is a good sign that a business is creditworthy. Therefore, lenders are confident in your business' ability to meet its financial obligations as agreed. Since you pose a lesser risk, you can benefit from better interest rates and terms.

How can your business improve its credit score by taking out a loan? When you get approved for a small business loan, it's possible to slowly build your credit by making payments on time. As long as you make your payments on time and in full, you can create a strong business profile that makes a good impression on lenders and investors. Options like debt consolidation and refinancing can help you leverage better terms and interest rates. Be sure to monitor your credit score regularly and check that the information on your business' credit report is accurate and up to date with all three credit bureaus. Taking out a business loan also helps you establish a long-term relationship with a lender. This increases your chances of getting approved for a new loan in the future since you have a mutual understanding with your lender.

What Are Your Business Loaning Options?

Your business is unique, and since there's a wide range of loan options available on the market, it's good to take your time and make comparisons to find an option that best fits your needs. You can take out a short-term loan, which is reserved for smaller loans that typically have to be paid back in less than 12 months. In contrast, long-term loans have repayment periods of up to five years or more and enable you to borrow a larger loan amount.

Generally, the world of business loaning offers a wide range of financial products, including equipment financing, SBA loans, business bank loans, and alternative financing. SBA loans are backed by the U.S. Small Business Administration and are meant to reduce the lender's risk, making it easier for small businesses to get financing. This is often necessary because, according to Zippia, only 48% of small businesses in the U.S. manage to meet their financial needs. Therefore, SBA loan programs can be a lifesaver if you can't get funding elsewhere.

If you're finding it hard to get funding, you should also consider loans from alternative lenders. Alternative lenders tend to have more flexible requirements and often specialize in providing loans to small businesses across a wide range of industries. If you qualify, business bank loans might be another option to explore, though the application and approval process is quite involved and lengthy. Equipment loans, which are a type of secured loan, are also available. The equipment that you're purchasing will act as collateral for the loan, allowing you to manage the purchase of expensive business equipment by spreading the costs.

Even if your business appears to be financially secure, there are many other benefits to seeking outside funding, such as saving on taxes. It's always a good idea to consult with a financial expert, so you can apply for and receive a financial product that's just right for your needs. To learn more about how business loaning can help your small company thrive, please feel free to get in touch with us at Chemung Canal Trust Company.