How to Use Your First Business Loan Effectively
How to Use Your First Business Loan Effectively
You have been approved for a business loan. Congratulations! That’s the hard part…or is it?
Now that your new money is at your fingertips, you may realize that the battle has only just begun. Your next big challenge is deciding how to use those funds in the best possible way and get a healthy return on investment.
How you decide to deploy your funds will always vary depending on your business, situation, and industry. That said, there are a few common things you’ll want to consider when starting to use this new capital.
Two central questions to start with are: First, how will I use this loan for my business — in one major area or spread across several? And second, how will I repay the debt?
Here, we’ll show you how to use your first business loan effectively to make the most of those hard-won funds.
1. Don’t lose your long-term costs
Your bank account is full now, but you still need to think about cutting costs and plan your budget. You may have money to cover your expenses today, but you can never be too prepared for a future financial emergency. Put some money aside and build your safety net. Your future self will thank you.
2. Make a constructive plan
It doesn’t matter what your business is, it’s important to have a plan. Figure out the areas (or areas) of your business that will benefit the most from cashing in.
What this means for you will vary depending on your stage and business situation. Some common areas to focus on include:
Sources and products are vital to the normal functioning of your business, and this is likely where you’ll be spending your loan, especially if you’re in the retail business. Using your money to replenish stock and buy inventory can be a great way to manage Seasonal discounts and even try out new products.
Consider whether it’s time to buy a new device. Depending on your industry, that could include a new truck for your delivery company or a new piece of machinery for your construction company. Equipment is often the driving force behind growth that can take your business to the next level, by increasing your efficiency or allowing you to reach more customers.
- Operating costs
Whether it’s physical space rent, gas, utilities, internet services and more, at the end of the day, it all adds up. Before you know it, frequent operating expenses can get out of control, so it may be wiser to entrust part of your loan to maintain those lights.
- Marketing and advertising
You may decide that using some loans for marketing is a valuable investment to expand and attract new customers. Ultimately, to grow your business, you’ll need to acquire new customers and keep the old ones in mind. This could mean investing in search engine advertising, print advertising, or customer appreciation event.
All of these areas can be great places to invest, whether you’re focusing on one of these key areas or spreading your business loan across a few areas. It all depends on what makes the most sense to business.
The bottom line here is that you will need a game plan that details exactly how you will strategically spend your loan. We recommend that you have your plans ready before you get the money (and then done when you know exactly how much you’re eligible for).
3. New product or service launch
Already have a loyal customer base and high sales? Looks like your business is doing well. For a business owner in this position, especially if competition is intensifying, this could be the right time to launch a new product or service.
If you want to grow a long-term and sustainable business, you need to be one step ahead and think not just about the next year, but the next five years and beyond. A new product or service could be just what you need to keep old customers loyal and keep up with the evolving market forever.
4. Pay off other debts or refinance
If you’re not the first to get funding, you’re probably running into some debt. However, borrowing from multiple lenders is often less economical than taking out a single loan, with a single repayment strategy.
Paying off old debts or pooling your loans in one place will make it easier to manage and budget for your payments, instead of having to pile up different debts at different times in your life. month. Not only that, you can find some substantial cash savings in the process.
If you have some outstanding debt, see all interest rates and payments. Consolidating your debt into a single, lower-interest loan can be a great move for your business.
Get your first loan
Now that you know what business to focus on when you get your first business loan, it’s time to get started with funding right from the start.
For more information, check out this guide to business financing, or if you already have a business loan, learn more about multi-loan or other forms of financing.
This post was written by Annabelle Amery for Lending Express. With an application, Lending Express uses AI technology to match businesses looking for capital with one of the 35+ partners (including Fundbox).