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Reasons why you need a small business loan and how to get it

Posted by Kanika Sinha

February 5, 2024

A comprehensive guide to small business loans.

Entrepreneurs often require financial support to fuel growth and achieve their financial goals. One valuable source of flexible financing is a small business loan.

A small-business loan is a source of capital that can help you cover day-to-day expenses, buy new equipment, or expand your footprint. You can access funding through banks, online lenders, government agencies, and community lending institutions.

This article outlines the common uses of small business loans and credit and how to apply for one.

5 reasons to apply for a small business loan

1. Replace or upgrade equipment

You typically have two choices when acquiring equipment: buying or leasing. While leasing may be preferable in some cases, there are instances where owning the equipment outright is a better choice.

Additionally, if your business depends on specialized equipment, small business loans can assist in either replacing outdated machinery or acquiring critical equipment.

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2. Business expansion

Business expansion is one of the common reasons to get a small business loan. Whether growing your existing footprint or expanding into a new location, the loan can provide the necessary funds to turn your expansion plans into a reality.

3. Buy inventory

If you run a product-based business, inventory is a necessary expense. Sometimes, you come across inventory at a discounted price or need to buy in bulk ahead of the busy season. In either case, a small business loan can help you stock your shelves.

4. Bolster cash flow

Working capital is crucial for day-to-day business operations and maintaining positive cash flow. Small business loans can help you cover operational costs and manage temporary cash flow problems until your earnings reach a sufficient volume.

In fact, with good business credit and a robust business plan, you can get these short-term funds at competitive rates and more favorable terms.

5. Hire and train employees

Small business loans can provide you with funding to hire new staff, train them, and cover the additional payroll costs.

Additionally, you can use the loan to implement incentives to help retain your talent, such as funding a company retreat to enhance training and communication, ultimately fostering employee motivation and commitment.

Talk to us about how Escalon’s FinOps can help you gain financial insights to make informed decisions.

How to apply and secure a small business loan

Here’s a step-by-step guide to help you prepare your small business loan application.

Step 1: Determine your financial needs

Assess your business’s financial needs before applying for a small business loan. This entails identifying your purpose for securing the loan — whether you need it for equipment purchase, expansion, or other requirements.

Step 2: Check your loan eligibility

Lenders often set out credit score requirements, revenue minimums, and time in business for firms to qualify for a loan. Carefully review your small business’s creditworthiness and financial background. Besides, ensure you take the necessary steps to enhance your eligibility.

Step 3: Compare your options

There are several places where you can find small business loans. Banks, online lenders, and community institutions are the most common types of lenders.

Take time to carefully assess the various lenders’ terms and the total loan cost.

Step 4: Gather important documents

Ensure you gather the latest copies of all the essential business documents, such as financial statements, tax returns, licenses, permits, insurance, payroll records, and the business plan.

Step 5: Submit your loan application

Submit your small business loan application along with all required documents. You can do this online or in person, depending on what lender you’ve decided to work with.

After submission, await an approval decision. If approved, the lender will send a loan agreement for your signature before disbursing funds.

The final word

Small business loans are invaluable financial tools for entrepreneurs looking to fuel their growth and navigate short-term economic challenges. Whether expanding operations, acquiring necessary equipment, or boosting working capital, these loans offer the flexibility and support businesses often need.

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By understanding the reasons behind seeking a small business loan, entrepreneurs can make informed decisions to propel their ventures forward and achieve sustained success in the competitive business landscape.

Want to know more about finance and accounting? Since 2006, Escalon has helped thousands of startups get off the ground with our back-office solutions for accounting, bookkeeping, taxes, HR, payroll, insurance, and recruiting — and we can help yours, too. Talk to an expert today.


Kanika Sinha
Kanika Sinha

Kanika is an enthusiastic content writer who craves to push the boundaries and explore uncharted territories. With her exceptional writing skills and in-depth knowledge of business-to-business dynamics, she creates compelling narratives that help businesses achieve tangible ROI. When not hunched over the keyboard, you can find her sweating it out in the gym, or indulging in a marathon of adorable movies with her young son.

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