When you're running a small business, there are many things to consider. You have to make sure you're staying within your budget, making enough money to cover expenses and pay your employees, and that your customers are happy.
But one thing that often gets overlooked is how to best use the funds from loans or investors. A small business loan can be a great way to get started with your business, but if you don't know how to spend it wisely, it could hurt your business more than help it.
You've spent years working on building your business. You've worked nights and weekends, scrimped and saved, and put in long hours to get it off the ground. Now you're ready to take the next step, but how do you wisely spend that first small business loan?
It can be a challenge to know where to start when faced with so many options. But here's a simple step-by-step process for spending your first small business loan wisely:
There are many ways to use small business loans wisely:
EXPAND YOUR BUSINESS
Expand your product line or add new features/services to existing products and services offered by the business that will improve profitability and competitiveness in the marketplace? Add some growth capital to your balance sheet and get ready for expansion!
INVEST IN SOMETHING USEFUL
Invest in new technology or equipment to improve efficiency, productivity, or service delivery. For example, if your current office space is too small for you and your team members, then a new office will probably help grow your company in the short term. But if there's an upcoming product launch that requires additional funding for marketing materials or other services, then that would be the best place to spend your loan money.
USE FUNDS SPARINGLY
One of the biggest mistakes people make with loans is spending them on unnecessary purchases or projects. Instead, use it as an investment in your company's future. Focus on what your business needs.
DON'T SPEND MONEY WITHOUT KNOWING WHY YOU NEED IT FIRST
Another common mistake people make with small business loans is spending money before knowing exactly what they'll be using it for. Get organized! Figure out what you need, what will work best for your business, and how much money will be needed. Remember that small business loans are intended for growing companies. Be honest with yourself about whether or not this loan will help your business succeed long term. If it feels like a riskier investment than others, it probably is! Think carefully about whether or not this is something that could lead to long-term growth or if it's just going to set you back financially in another way (like paying off debt).
Small business loans are a great way to get your company off the ground—and they're available to you! But when you think about spending that money, it can be hard to know where to start.
When you're a small-business owner, it's not unusual to think that the best way to grow your company is by taking out a loan. After all, when you're just starting, it can be hard to imagine that there are any other options for funding short-term expenses or long-term investments. But taking out a loan isn't always the right choice—especially if you're unsure how to spend it wisely.