A business loan? Why would I want to get into that?! That feeling can be a healthy, natural reaction to the notion of taking a smart loan. 

It can also be the reason why 82% of businesses fail: lack of capital.

If you’re smart, you’ll want to analyze available options to keep the cash flowing and your business growing. 

There’s one critical factor that determines whether taking a loan is a wise move.

Will it help your business DO MORE?

Just as investments pay, and don’t cost.

Smart loans pay. They don’t cost

When should you take out a loan or get a line of credit? When it pays. If it will bring you more profit than you currently have, go for it.

If the loan funds will generate enough profit to cover the loan and the interest fees, then you can be calm that a business loan is the right choice for you. 

How can you know?

Nothing is guaranteed in business. That’s why those who are willing to take risks are often more successful. But, by scrutinizing your business numbers and by analyzing the market, you can forecast what your profits should be.

When you’re considering a loan, you need to write a business plan. 

The business plan you create should outline what the funds will be used for, how and when the loan will generate profit for your business, and how that timeline aligns with your loan’s term.

If you estimate that you can comfortably pay back the loan while earning more profit, do it!

Not every reason is a good reason. 

You need to use basic judgment and common sense to factor out business ventures that are too risky for loans. 

Here are six solid examples of when taking out a loan can propel your business forward. 

1. Buying equipment:

If you need machinery or a product to provide your service, taking out a loan can be the right choice. It may seem like a no-brainer, but you should still do a cost-benefit analysis to rule out the temptations of updated products from true needs. Often the equipment can serve as collateral for the line so you can get better interest rates. 

2. Purchasing inventory:

Often (but not always!) the more you sell, the more you can earn. Additionally, some businesses are seasonal and don’t have liquid assets before their sales season to buy stock. A loan can help replenish your inventory and keep your business moving forward. Again, make sure to crunch those numbers before jumping to loan options.

3. Increasing working capital:

Working capital is the available assets and cash a business can leverage to manage day-to-day operations. Having enough working capital is crucial for business management. A working capital loan can help businesses survive tough times. This can be essential for nurturing your company’s growth. Deciding to pursue a working capital loan is usually a tough move because forecasting the benefits can be tricky. But it’s very often the make-it-or break-it decision for small businesses. 

4. Hiring talent:

Hiring employees to offer additional services or upgraded products is a great move to keep a business competitive. If you can make a direct connection between the additional talent and more revenue, you’ll be making a smart business decision.

5. Expanding the business:

The opportunity for business expansion can mean opening a new branch, marketing to a new target market, hiring more workers, or buying a smaller or competing business. When business is flourishing, continuing to grow your business ensures that you remain competitive and at the forefront of the market. 

Calculate the expected increase in sales that such expansion plans will bring your business. If your plans will make a positive impact on your bottom line, do it!

6. Buying out a partner:

Sometimes a partnership just doesn’t work. If you want to keep the business, and its profits — and your partner wants out — a loan may be just what you need. But just because your partner agrees to be bought out doesn’t mean it’s wise to do so. You need to evaluate how essential your partner’s expertise and contacts are to your business’s success. Accept a loan only if it aligns with the value of the business without your partner.

Taking a smart loan is not an open-book decision. 

Yes, these six examples are classic situations when businesses should apply for a smart loan. But every business, and every business owner, is different. Remember to build your own business plan and factor in the costs and risks. Calculate cold numbers to see if and how your bottom line will improve with the loan.

Running a business is tough. Decision making is tough. And sometimes we want to push off that dilemma until it’s a tad too late. But you’re smart and you can assess the options to keep your business growing.

If the potential return on investment outweighs the risk and the debt, go for it! 

What’s a TD Unsecured Business loan and why is it famous? Find out here.