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SBA loans are advantageous for American small business owners who are not able to get financing through other ways. With lending programs like the 7(a), the SBA acts a guarantor on loans provided through commercial lending partners.
To qualify, business owners need to prove that they have tried all other financing options. Given the many hoops to obtaining an SBA loan, business owners who succeed should invest the funds they get wisely. In this post, we will share examples on how you can utilize SBA loans for business success.
Buy Equipment
Purchasing equipment is one way of using a loan to grow your business. Purchasing additional pieces of equipment can help you increase productivity and efficiency. Upgrading equipment or improving infrastructure can have the similar benefits.
Purchase Inventory
Leverage is a financial services concept that means using borrowed money to generate a greater profit than can be otherwise achieved. The more products you have, the more you can sell. If your revenues are limited to how much inventory you can afford with existing funds, an SBA loan could allow you to purchase more than your business’s normal capacity.
Consolidate Debt
An SBA loan can help consolidate payments and lower your interest rates if your business is struggling to pay off credit card debt or other balances. Since SBA loans come with a government guarantee, interest rates are close to or based off the prime rate. By having lower monthly interest payments, it can help improve your business’s overall cash flow.
Manage Cash Flow
Thriving businesses can struggle with cash flow management. If revenues are high, customers may have a certain length of time before they need to pay and can make late payments. In the meantime, suppliers and staff will be expecting payment from your business.
Invest in Marketing
Sometimes it pays off to invest in less tangible benefits such as advertising or other outreach activities. The benefits of marketing and brand promotion can be hard to quantify but can have long lasting effects on your business. If you want to spread the word about your business, you can use your SBA loan to invest in new marketing strategies.
The Bottom Line
There are some restrictions on how SBA loans might be used. Loans obtained through the 7(am) program can be used for anything like paying off debt or buying equipment. The CDC/504 program on the other hand is great for fixed assets like real estate or equipment that can service certain policy objectives. Small business owners should articulate the needs of their business before applying and choose the loan that works best for their situation.
