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Finance & Accounting, Small Business Loans

3 Signs Your Business Could Benefit from a Commercial Loan

commercial loan

Companies borrow money to ensure access to extra working capital. These funds can help business owners grow their companies, weather rough patches, and operate more efficiently. Do you need to decide if it’s the right time for your business to apply for a commercial loan? If so, take a moment to gain some insight into the nature of business borrowing and when companies can gain the most benefit from it.

The Basics of Commercial Loans

If you haven’t ever applied for a business loan before, you might have funded your business with your personal credit or savings. You aren’t unique in your approach. In fact, Forbes reported that a majority of new businesses use personal savings or loans against personal credit and assets. In contrast to personal loans, commercial loans are those that are made specifically to a business and not to an individual.

Types and sources of business loans may vary wildly. For example, the terms can vary from 30 days to 30 years, and the amount borrowed could range from a few thousand to many millions. Businesses use this money to ensure access to working capital when they need to hire employees, purchase inventory, or make other investments that support business growth. Certainly, you should explore different loan options before deciding which one to choose.

What Time Is the Right Time to Get a Business Loan?

Consider these three circumstances that signal a commercial loan could help your business:

  1. You Need to Establish Business Credit

If you’re relying upon your personal line of credit or savings account for business funding, you aren’t establishing credit in your company’s name. In order to raise your company’s credit rating, you need to establish the company’s own credit accounts. That first loan also gives your business a chance to demonstrate that you can handle this kind of credit responsibly. Even if you don’t absolutely need a loan today, you never know when you might urgently need one in the future. You can always apply for a line of credit and only borrow money as you need it. Certainly, you can find some way to use some extra cash to help reduce future expenses or grow your business.

Why not borrow a modest amount to fund a business goal? You can pay the loan back promptly and know you’ve got access to credit when you need it. If you start by borrowing a manageable amount, you also have a chance to test out your credit management strategy.

  1. You Incorporated Your Business

Incorporating gives the owners certain protections for their own individual funds and credit ratings. Mostly, corporations and not individuals are liable for corporate debt. Those protections won’t extend to your personal obligations to credit card companies and banks. By using personal credit and savings, you’re ignoring one of the greatest benefits of incorporating.

If you use a commercial loan to fund your company, you’re shifting the liability to your business and using other people’s money to grow. You want to establish a great history of prompt repayments and wise credit management. At the same time, you might as well take advantage of the protection that incorporation can offer.

  1. You Need Help with Cash Flow

Managing cash flow is one of the most critical elements of managing a thriving business. Even companies that run very profitably may fail if they lack the cash to pay bills. In some cases, having access to extra cash can help companies save money in the long run. For example, this cash can purchase modern equipment, buy more inventory to qualify for a discount, and pay extra employees.

Managing credit is simply one aspect of managing cash flow. Companies often need to hire more employees or buy new equipment before those things will actually produce extra revenue. A commercial loan can bridge this gap.

Getting Started with Commercial Loans

Owners of small and emerging businesses may find that bank credit is tough to get. Even when banks approve loans, weeks or even months can pass between the initial application and actually getting funds put into an account. That’s why many business owners are turning to online lenders.

Business owners can save time by filling out applications on their computer or smart phone. They often also find that online lenders approve many applications that banks decline. Funding usually happens within a few hours to a few days of filling out the application. If your company needs some extra cash to reach its potential, you might find that an online lender is the easiest option for obtaining a commercial loan.

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Kabbage Team

Kabbage is here not only to provide access to the small business funding you need, but to also help you grow your business through free marketing tips, webinars, tools and more. Is there something you'd like us to cover or want to get your small business featured on our blog? Send us a note at content@kabbage.com.