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Updated: Nov 23, 2015
It is a commonly held myth that you should only apply for a business loan to stave off financial disaster.
But in truth, business term loans are designed to seize growth opportunities — empowering you to take your business to the next level. Sometimes you need money to make money. As you consider whether or not to pursue a business loan, there are some preliminary questions you should ask yourself:
What sort of revenue is your business currently generating?
This will determine how much you will be able to pay on the loan and the size of the loan you’ll be able to secure.
How much new revenue will the opportunity generate for you?
This will help you evaluate the opportunity and decide whether it’s worth pursuing.
What are the terms of the loan, including APR?
Knowing the true cost of your loan will help you identify whether to pursue the opportunity at all. Do some calculations to determine if your loan payments would exceed the amount of revenue you might gain from the opportunity.
With these questions in mind, here are some different business scenarios where a loan could be the fuel you need to expand:
One of the main ways to grow your business is to identify what’s working well and expand upon those successful operations, or identify easy ways to make improvements with guaranteed returns. However, since the credit crunch of 2008, it hasn’t always been easy to find fast and affordable growth capital from traditional financial institutions — so many small business owners have turned to online peer-to-peer loans to take advantage of growth opportunities.
You could be like Yogibo, and want to expand your successful, established business into new geographic markets — but traditional banks are too slow to get you the capital you need. You could be like Maika Goods and have a great idea for a new marketing campaign that will grow your market share — but traditional banks don’t understand your business.
Or you could be like Papa Johns in Lomita, CA and want to renovate your existing location so you can create a more attractive environment for your customers. A peer-to-peer loan offers you the chance to access the flexible and low-cost capital you need to go to new markets, initiate a new marketing plan, or renovate your business. And if you do it right, the profits from those activities should exceed the loan’s costs.
Depending on your type of business, your equipment needs could range from computers to steel presses to pizza ovens. While high-quality equipment is vital for a business to work, the buck doesn’t stop there — and peer-to-peer loans are great for businesses looking to make the best of their large equipment investments.
For example, a pizza kitchen might want to expand its capacity by buying a second oven. But for that second pizza oven to pay off, you will have to hire more staff to operate it and possibly increase your marketing to attract more customers — all of which cost more money. Such scenarios, where you need money to make money, are a perfect fit for a flexible lender who cares about the potential of your business — and your plans for growth.
At Funding Circle, we don’t just loan you the funds you’ll need for a new piece of equipment; we’ll also work with you to make sure you can obtain all the other elements you need to make the new addition a profitable move for your business. That’s why we pair every business owner with a loan specialist, and often connect you directly with our underwriters directly so you get the right-sized financing for your needs!
Sometimes, when your products are flying off the shelves, you don’t have enough capital to ensure that your inventory matches your customers’ enthusiasm. You might be like Peak Design, a startup that makes camera accessories for amateurs and pros. Peak Design’s growth is so fast-paced that it is often difficult for inventory to keep up — and traditional institutions were too slow-moving to provide the capital that they needed to take their brand to the next level.
Enter our marketplace of investors, who understand the challenges of a rapidly growing business with a dedicated customer base. After explaining their promising opportunities for growth to one of our underwriters, Peak Design was able to get the funds they needed to meet customer demand in under five days. Now Peak Design is able to keep enough inventory on hand to keep their customers happy, which translates to a happy and profitable business. They even had enough leftover to launch two new products!
Are you ready to take your business to the next level?
Take 60 seconds to check your eligibility for a Funding Circle term business loan today.
Paige Smith is a Content Marketing Writer and Senior Contributing Writer at Funding Circle. She has a bachelor's degree in English Literature from Cal Poly San Luis Obispo, and specializes in writing about the intersection of business, finance, and tech. Paige has written for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.