Businesses routinely borrow money for a host of different reasons. However, some of these reasons are far more prudent than others. When it comes to spending borrowed funds, there is little room for error because the money needs to be repaid, with interest.
While you likely have plans on how to spend the money you will get from business loans, it is a good idea to read a bit about what truly prudent spending entails. This will help you avoid risky ventures and unnecessary expenditures when you are handling funds that are borrowed.
Let’s look at some specific things you need to remember if you want to get the most out of a business loan.
Cut Costs And Continue To Budget
Just because your business has a sudden influx of cash from securing a business loan does not mean that you should get complacent when it comes to spending and frugality.
Indeed, one effective use of a business loan is debt restructuring. By consolidating your business debts with a new bank loan, you will be able to steer potentially unsustainable financial situation towards a more stable footing.
Own Your Debt
Make sure that you do not leave your debt in the back of your mind and forget about it. It is important for you to make a plan for paying it back and execute this plan to the letter. To help you with this, it can be useful to keep the funds you received from the loan in a separate account, outside of the general cash flows of your company. It is a very good idea to set up automatic repayments so that you do not end up forgetting or missing a payment. This will come with potential penalties and extra interest charges which is not ideal for a small business with expansion plans.
Buy Equipment
One of the best ways to spend the funds you have received from a business loan is to buy expensive capital equipment. However, do not buy equipment simply because you can. Make sure that the tool is something that will improve your processes or will add value to your business in some way. This will make the investment worthwhile in light of interest fees on your outstanding debt.
Stock Up On Inventory
If you are expecting a surge in demand for your products, or even to be on a secure footing for the immediate future, it often makes economic sense to use business loans for building inventory. By stocking up on your goods, you will be able to have plenty of supply ready to go to meet future ambitious sales targets.
Expand Your Marketing Reach
Your marketing budget will also benefit from an influx of cash and, if your current marketing strategy has been lacking, then this may be just what your business needs. With extra funds, you can afford to revamp your digital presence, expand into social media marketing, pay for more print advertising, or even hire an agency to help you out. When you spend more money on your marketing, you can expect that greater revenues and more customers will start flooding in.
Maximise The Benefits From Your Borrowing
With these tips, you will be able to spend your business loan in a way that will actually add value to your business. One of the biggest mistakes that many business owners make is to put borrowed funds into dead-end projects or ventures that will provide little-to-no potential for growing your business. Avoid falling into complicated situations, then be sure to remember these tips well.