Spending Your Business Loan Effectively

Are you thinking of scaling up your business with a business loan?

Do you require a working capital loan to purchase more inventory?

Would you like to expand your marketing strategy to improve sales?

These are main reasons why business owners take up working capital loans from traditional banks, peers and families, P2P platforms, government institutions etc. Be sure to talk to multiple financiers/ debt providers to compare the rates provided. There could be large discrepancies which could ultimately affect the profitability of your business. 

Now, imagine that everything went as planned with the working capital loan approved. How do you ensure your business loan is spent effectively, generating the greatest returns for your business?

Build a Safety Net with your Business Loan

Allocate a portion of the business loan received as emergency funds. With looming uncertainties surrounding the business ecosystem, this safety net could act as a buffer during an emergency, or it could contribute to your bank balance which increases the likelihood of you getting an approval when you apply for working capital loans. Debt providers would feel more assured when the bank balance is sufficient as it shows your business provides them with the confidence that repayments could be done.  

Set Up Automatic Loan Repayments

Late or missed repayments are costly, adversely affecting your business credit score. An auto-debit helps manage your business loan repayment by saving your time and preventing late charges, improving efficiency, making it a win-win situation!

Tranching of Funds

It is common for businesses to seek for a loan quantum that is larger than what’s required. To them, this eases the application process which can be tedious and time consuming. Speak to your debt provider to see if they can provide working capital loans in tranches. This allows you to drawdown multiple times, saving your business expenditure on interest payments.

Conduct Budgeting Before Applying for a Business Loan

It is essential to calculate monetary needs and set appropriate budgets prior to business loan applications. This is especially important when it comes to working capital requirements. SMEs often struggle to plan with their limited resources. Besides, SMEs overlooking business priorities can also bring detrimental consequences. Budgeting provides the business owner a clearer perspective on cash flow, reducing costs, and improving business profitability. 

Utilize your Free Cash

As your business scales with positive returns, your bank balance will increase. Depending on the business’s future prospect, it could be ideal to retire some loans. However, keep in mind some financial institutions would impose charges on early payment. Conduct a cost benefit analysis before making such decisions.

Overall, acquiring a business loan can be financially beneficial for your business. It allows your business operations to run smoothly, especially during times of financial strain. It is also essential to always ensure your business has a healthy credit score to increase the probability of obtaining financing.  Click here to find out how your credit score helps you raise working capital and manage risk.

For more information, do reach out to us at [email protected] for a chat!

Soek Yee