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Small loans can mean big profits for your business

Updated: Feb 21, 2022

There's a common misconception that business loans should only be used when and if cash flow becomes an issue, however even a profitable business can benefit from acquiring a loan.

Here's why you should consider a business loan as an attractive finance option, and how it can help grow your business in 2021 and beyond.

Why get a business loan?

There a few reasons to consider taking out a small business loan:

  • If you are starting a new business or looking to make changes to your current one, a business loan provides a fast way to access the collateral to make that happen.

  • A business loan could assist you in hiring, training and retaining a high quality workforce, purchase new equipment, to move or expand your business premises, and pursue strategic opportunities.

  • Unlike using an investor, a loan can’t stipulate how you spend the money. Small business loans are also easy to access and manage and won’t ever turn up to a weekly meeting uninvited to check on their investment.

This business loan guide outlines how to decide the best type of loan for your business and how to apply for one. As your broker, we can also walk you through this process.

Prioritise the essentials first

While it might be tempting to go on a bit of a business shopping spree with a new loan it's wise to focus on investing in some essentials (such as a website or inventory) first.

For example, you're entering a busy season and are running low on stock, but you don't have the funds available to inject into your inventory. A business loan could allow you to stock up for busier periods.

Decide what your business really needs to grow and survive and inject the new cash into those essentials.

Manage your marketing

Consider putting some of your loan amount into marketing. Now, more than ever, businesses rely on being visible to their new or potential customers. Social media offers a low-cost avenue for business promotion, executing the full-fledged marketing strategy your business needs to flourish will incur a higher cost.

An effective marketing strategy is underpinned by being able to measure your return on investment (ROI). Before you inject your entire loan into channels you haven't previously explored, perform smaller-scale trials to adjust the campaign and use the data to inform your spend.

Protect your profits

If your business is starting to make some money, it's smart to consider putting that profit back into the business to help sustain growth. Over 60% of small Australian businesses close within their first three years - and that was before the added pressures of the pandemic.

Reinvesting occurs when net profits are retained and invested back into activities or initiatives which will again increase the value of the business.

While making regular payments on your loan is important, make sure you're leveraging the additional cash to extract its full value.

Get prepared and make a plan

If you decide a small loan is right for your business, there are some simple steps to take to ensure you're successful with an application.

  • Get your finances in order. Know what your incomings and outgoings are and document them properly.

  • Create a business plan so you can show a potential lender how you see your business growing over time.

  • Do your numbers and work out how much you can afford to pay back each month. A loan is just that, and you will have to make monthly repayments.

Surviving after the C word

COVID-19 didn't only wreak havoc on global health and economies, it also impacted big and small businesses. If your business is in survival mode there is help available.

The Australian Small Business and Family Enterprise Ombudsmen funding guide has been updated to reflect changes brought about by COVID-19 and how it may have impacted your business. Click here for more information.

Until 30 June 2021, eligible lenders are able to offer loans as part of the second phase of the Coronavirus SME Guarantee Scheme. With a maximum loan size of $1 million and loan periods of up to 5 years, loans can be used for "a broader range of business purposes, including to support investment in a period of economic recovery."

Talk to your broker

As your broker, we can help you find the best small business loan to suit your needs. Talk to us today to find out how we can develop a tailored solution for your specific circumstances.

Original post by Bank of Queensland



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