Photo by Avel Chuklanov
In Switzerland, bank credit for SMEs has a tarnished reputation. But why is credit so important to you as an entrepreneur?
According to the study on the financing of Swiss SMEs, a large part of Swiss small business owners have a bad image of bank credits. But this is not the case because a credit can be the ideal tool to grow their companies. Here are 5 illustrations why your company might need a credit:
1. Expansion
Probably the most obvious reason to consider a small business loan is to invest in an expansion opportunity for your business. When business is booming, continuing to grow your business can help keep your profits from plateauing or declining.
Of course, there are many costs associated with continued growth, such as advertising, purchasing new real estate, renovating buildings and increasing the size of your staff, and it’s unlikely that you’ll have the cash flow to cover all of these costs unless you dip into the funds that keep your business running.
Loans can help you finance the expenses associated with expanding your business without exceeding your operating budget, so you can continue to serve new customers while growing your business.
2. Inventory
Inventory is one of the largest and most difficult expenses to manage in many industries. The problem is that you have to invest in the products you will offer before your customers can buy them and offset the cost. Once you are in business, you must continually increase and replenish your inventory to meet demand and provide better options for your customers. This expense is even more difficult when your business requires seasonal inventory, like winter coats.
By taking out a loan to offset inventory costs, you can stay ahead of trends and customer demand without hurting your cash flow.
3. Working Capital
Cash flow is always a challenge for a small business, and it can continue to be so when you’re dealing with customers who don’t pay for their services on time. This is even more problematic when you factor in the regular costs of your inventory, staff, utilities and rent or mortgage.
A short-term loan provides money to use for your regular operating costs, and can help your business stay afloat when profits are low. By maintaining cash flow in your business, you can continue to attract new customers to generate revenue while making up for other losses.
4. Equipment
Every business has the equipment needed to do its job, such as a machine, or equipment used by your customers, such as a treadmill. Equipment is expensive, it wears out and becomes obsolete over time.
Unexpected expenses, such as repairing or replacing broken equipment, can exceed your budget, and sometimes it’s not possible to do without the equipment. Broken or malfunctioning equipment can also increase your liability and drive away customers who need reliable service, which will cost you more in the long run.
Loans can help you manage the financing of purchasing or repairing the equipment that will allow you to do your job and provide a better experience for your customers. They can also help you keep your business up to date with new technologies that improve your services and interaction with customers.
5. To improve the terms of a larger loan
If you anticipate needing a large loan in the future to expand your business or upgrade your equipment, it may make sense to take out a smaller loan first, especially if your business has no credit history.
The first loan you take out for your business will likely have less-than-ideal terms, because you haven’t yet established your credit, and the high interest rates will hurt larger purchases that are critical to your business.
One strategy to ensure you get good terms on a large, vital loan is to get a small, easy-to-repay loan before you need a large loan. If you pay off the small loan quickly, you may be able to get better terms when you need a larger loan in the future.
Consider using your first business loan for a small piece of equipment that would make your life easier, without breaking your budget. Then, when you need to buy something bigger, you’ll have a strong credit history that will allow you to get better rates.
Of course, no small business should take on debt unnecessarily or beyond its financial capacity, but sometimes a loan is the right decision to keep your business afloat or improve its results. You should always weigh the cost and benefits of a loan, but if it has the potential to significantly increase your revenue, it may be time to look into loan options.
Do you have questions about credit financing or your company’s financial capacity to take on credit? Do you want to know how to build a credit application? Make an appointment with our expert today using the contact form.
Leave A Comment