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7 effective ways to use a small business loan

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7 effective ways to use a small business loan

Updated: February 20th, 2024

7 effective ways to use a small business loan

Whether you run a bicycle shop in the UK or make promotional tchotchkes in the U.S., chances are the time will come when your business needs to make a capital expenditure. Taking out a small business loan can be a surefire way to increase your revenue stream or help you through healthy ebbs and flows in income.

The rise of technology has made it easier than ever for business owners to obtain an online loan within days at competitive rates. Did you know that in 2018, approximately 33% of business owners looking for a loan pursued one with online lenders? Like anything, there’s good debt and bad debt, and you just want to be sure that the purpose of the funds falls into the ‘good reasons to get a business loan’ bucket. Otherwise, your balance sheet could get out of whack and leave you scrambling to catch up.

Whether it’s to take your business to the next level or move to a new location during a summer lull when cash flow is tighter than ever, there’s no shortage of reasons for what business loans are used for. The key is to have a financial plan in place that covers how the money will be directed even before you begin gathering the paperwork or other financial details that you will need to apply for a loan.

When you’ve planned out how to use your loan, you can be sure and make the most of the opportunity when the funding arrives. Preparation will allow you to direct it in a way that will most benefit your business and paving the way for future credit when the need arises. Let’s explore some good reasons to get a business loan.

Opening a new location

If you run a brick-and-mortar store, nothing says growth like opening a second or third storefront. As the adage goes, however, in order to make money, you must spend money. So when it comes time to grow, you may find that your expenses similarly increase. A small business expansion loan could be used to help foot the bill for land to build on or cultivate, or space in a new building.

Of course, you’ll want the new location to be a reflection of your brand. This will often require making renovations to the new space, from painting to ceiling repairs, all of which could cause your cash flow to take a hit. This is another part of expansion that business loans are used for. While it requires an investment up front, a successful business will begin paying for itself once it begins generating the additional revenue stream for the business owner.

Repairs are good reasons to get a business loan

Speaking of repairs, did you ever notice that appliances and heavy equipment seem to go bust at the worst possible time? Repairs can be costly, requiring thousands of dollars just to have things running smoothly once again.

If you don’t have the cash on hand, you might think you’re in a desperate situation. But, when it comes to what business loans are used for, this is one of the most common examples. An equipment loan could be the solution you’re looking for. One business owner at a brewery described how they “were in a spot” and a loan gave them nearly $8K to fix the broken plumbing. They described the process as “crazy easy” and got to spread the repayments over a year-and-a-half period.

Change locations without using working capital

Whether your lease is expiring or the building owner is changing hands, you might find that you need to change locations sooner than you expected. Sometimes the need to move can occur at the most inopportune time, such as during the holidays.

This is another good reason to get a business loan. You can gain quick access to funds with an online loan or merchant cash advance, for instance, and direct the capital toward moving expenses, down payments, and the like. Meanwhile, spread the repayment period out over a period of months or years, depending on the type of loan, and you won’t have to dip into your working capital that is precious – especially during certain times of the year.

Business loans can be used for hiring

One of the features that lenders – especially alternative lenders focused on small businesses – pride themselves on is helping businesses like yours to grow, and job creation is often at the heart of this. It’s a virtuous cycle of hiring, bolstering economic production, and creating more tax revenue for the local economy.

Hiring is one of the many good reasons to get a business loan, as new talent could be key to launching a new product or service into the market or just remaining competitive. If you’re confident that the demand for your service or product is there, directing a small business loan toward hiring more employees may very well be one of the smartest investments you make. It could remove some of the burdens of the day-to-day operations and free you up to focus on growing your business.

Purchase equipment or add inventory

The tools that are required in your line of work can make or break your business. If your business’ revenue is limited as a result of inefficient equipment, you won’t be able to grow. Wondering what are business loans used for when it comes to equipment? Well, equipment financing can be your means of securing new tools that can help you do everything from expanding your product line to increasing the size of your inventory.

For instance, if you’re looking to bottle your famous chili but are relying on a Crock-Pot to make the product, you won’t be able to scale. Investing in refrigeration for mass distribution could catapult your business to the next level and is one example of how a business loan can be used. Meanwhile, if demand appears to be outpacing your supply, there are specialized inventory loans that can help to keep your production line moving.

The same is true for equipment leasing or purchases. You know that purchasing or leasing equipment is a good use of credit when there are loans specifically designed for this purpose. Whether you need new appliances for a commercial kitchen or a forklift, an equipment loan will do the trick and can make the difference between keeping operations going and having to close up shop.

Get necessary funds quick

Time seems to fly faster for business owners than anyone else in the world. It’s not unusual to find yourself nearing the end of the week and needing some help making the gargantuan task of payroll or paying a supplier by 8 a.m. Friday morning to keep the relationship intact. Online lenders have the fantastic ability to get funds to you when you need them.
Use a business loan for debt consolidation

If you’ve been in business for a while, you might find that you already have debt that is hanging around. Another thing that business loans are used for is to consolidate your debt – ideally at a more attractive interest rate – so that payments are streamlined. You could also direct the funds toward a hefty tax bill that is due that would otherwise create a cash crunch for your business.

Small and medium-sized businesses are a major contributor to GDP expansion around the world. With so many good reasons to get a business loan, accessing capital to grow your business has the potential not only to increase the company’s performance but also further bolster the local economy. You’ll find that lenders are keen to meet your business financing needs.


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