Top 4 Ways to Use a Small Business Loan

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Before even applying for a small business loan, you’ll want to know exactly how you plan to use the funds. This will help you choose the most fitting small business loans for your needs and figure out the right level of funding. After all, loans for small businesses can range from a few thousand dollars to a few million dollars — and come with a wide variety of terms.

Entrepreneurs use business loans in many ways, but here are four of the top ways to put those funds to work for your growing company.

Building a Cash Buffer

For individuals, having savings — especially an emergency fund — is important for handling necessary purchases and unexpected expenses as they pop up. It’s no different for businesses; companies need available capital so they can take costs in stride.

According to data from the Federal Reserve, two-thirds of small businesses had experienced financial challenges in the last calendar year — with the leading reason being the need to pay operating expenses. Keeping funds from a small business loan on hand for immediate use can mean the difference between weathering the storm or having to take on debt.

Buying Equipment & Supplies

Purchasing the equipment and supplies your business needs to keep functioning is another smart way to apply business loan funds, like specialty tools or IT gear. This is especially true if one of your business objectives is to grow but you need more equipment to support that expansion.

As Entrepreneur advises, just be sure to differentiate between needs and wants. Determine what your company truly needs to thrive and grow while steering clear of frivolous extras that will eat up your loan funding without contributing any measurable impact on performance. Just like when you’re shopping online for at-home gadgets and gizmos, it can help to instill a waiting period before making any major purchasing decisions.

Buying & Storing Inventory

Along with buying equipment to drive growth, small businesses selling physical products will have to plan for the costs of buying inventory and storing it — also known as inventory carrying costs. Depending on the price and volume of your inventory items, this may require a significant investment. This is where business loan funds come in handy, especially ahead of busy seasons when you need to buy more stock than usual.

Expanding Marketing

A little extra cash in “your pocket” can go a long way toward expanding your marketing efforts. This looks different for every business, but possible avenues to explore include ramping up content marketing — possibly by hiring a third-party agency to produce more content than your current staff could — or launching a referral marketing plan.

Consider how extra funds could help you grow not only brand awareness and acquisition of new customers, but also strengthen existing customer relationships as well. If your company doesn’t already have a loyalty program, or hasn’t updated it in a while, consider how you can further develop it as an ongoing connection to your appreciated customers.

These are just four of the dozens of ways to use a small business loan to take your company to the next level. Even if your company has enough working capital for now, it pays to think ahead — planning ahead will allow you to find the best-fitting small business loan for your specific needs.

At the end of the day, having working capital on hand will allow you to optimize your business and grow it over time, whatever that looks like for your company. When in doubt, create a healthy cash buffer, get your company the equipment and supplies it needs to function optimally, increase your capability for purchasing and storing inventory and amplify your marketing.

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