Should I Get a Small Business Loan? (2024)

Should you get a small business loan? Each business is unique. So, there’s no single, universal answer to this common concern. However, we can examine some important questions, whose answers can help you make the best decision for your situation.

What is a Small Business Loan?

A small business loan works just like personal credit, only it’s intended to help you grow your business. For a new business, you will still personally guarantee the loan, but you will have to qualify based on your business’s health and your ability to demonstrate how the money will make your business more profitable and stable.

Though they are conceptually similar to personal loans, you can expect to see a few differences with small business loans:

• You can get a small business loan for far more money than for most personal loans short of a mortgage
• You may pay more interest, and possibly higher fees, than you would for a comparable personal loan
• The application process can sometimes be more detailed and time-consuming

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How Can I Use a Small Business Loan?

Don’t think of small business loans as a credit card, which you use for convenience or to buy something today that you can’t really afford until tomorrow. Think of small business loans like student loans: specific investments that will make you more money than you paid in interest once you’ve leveraged what you buy.

By making this kind of investment, you can make more money sooner. This process can help you grow your business’ profits and income. In comparison, a small business loan is much like a student loan.

You borrow and spend the money during college so your salary post-graduation is high enough to justify the expense and interest. With a small business loan, you borrow and spend the money one year to make more money moving forward through the next several years.

What Kinds of Businesses Can Benefit from a Small Business Loan?

Businesses in every industry and region can, at one time or another, benefit from the right kind of small business loan. When talking about kinds of businesses that benefit, you should consider what stage the business is in. Some stages that often benefit greatly from small business loans include the following:

• Starting businesses in need of seed money
• Retailers or wholesalers with large orders to fill before their payment comes in
• Businesses in an expansion phase who are adding new equipment, staff or locations
• Seasonal businesses that are preparing for the rush
• Companies who are taking advantage of an unexpected opportunity
• Businesses in need of extra employees temporarily
• Companies who are ready to expand their marketing presence

Basically (as mentioned before), any business that has the ability to make more money in the present once they have some money available to invest is likely to benefit from a small business loan.

There are many businessstages that often benefit greatly from small business loans.Click To Tweet

What Are the Most Important Considerations?

When dealing with a legitimate lender, the considerations associated with obtaining a small business loan are more about why you’re taking out the loan and what you do with the money. If you’re thinking about taking on a small business loan, make sure you keep the following things in mind:

• Not having a definite purpose for the money, which almost always means that you are borrowing money that will not pay for itself. Always have a concrete plan and incorporate benchmarks that will help you ensure that you are properly using your small business loan funds
• Buying things your business doesn’t really need. This can include upgraded equipment or furniture that merely makes your office look posh, or distracting ideas that you haven’t fully investigated. Borrow only for things the company truly needs to boost business and revenue.
• Not having a definite plan for payback as a loan is a lot less profitable if you have to pay late fees or deal with other hassles associated with not paying the loan on time. Use realistic projections about what the loan can do for you, then set up a payment schedule based on conservative numbers.
• Timing the loan wrong, so you fund early and pay extra interest or fund late and miss your window. Online loans can potentially help eliminate this problem, since their rapid speed of approval and funding lets you time the loan more precisely.
• Not borrowing enough. This is a little counterintuitive. Borrowing less is better than borrowing too much, right? Not in this case. You should borrow enough money to fully leverage the advantage you hope to get from the additional funding. If you can’t achieve your intended purposes then you’ll be making smaller payments, but making less money off the loan.

The Bottom Line

Your job as the manager or business owner is to see how many of the above questions you can answer. Once you have a clear understanding of these concerns, you will then be able to make the best decision for your company and situation.

If you lack a clear plan for the money and aren’t sure how you will be able to pay back your small business loan, then you might need to evaluate your business and your goals before getting a small business loan. In contrast, if you know exactly what you want to do with the funds and how you’ll do it then a small business loan may be exactly what your company needs to advance in the business world.