Uses of Business Loans
There are many reasons for companies
to obtain business loans. Whether the business is just starting out or
expanding rapidly, at some point, nearly every business owner will need to
borrow funds. Here are some of the most common reasons for a business owner to
apply for a loan.
Start-Up Costs
There is a lot of money involved in opening a new business, and most small
businesses need some form of financial aid when they are just starting out.
Start-up loans are designed to be used as a short-term aid to help a new
company take off. Because financing a new business is often risky, a business
owner may have to try several different lenders before obtaining a loan.
Acquiring and Developing New Property
Businesses use acquisition and development loans to acquire and develop
commercial property sites. These loans are used to help pay for purchasing the
land and to make improvements on unused land parcels prior to beginning
construction. Improvements include grading, paving and subdividing the land
into smaller parcels and bringing utilities to the site. If a company already
owns the land it wants to develop, it can obtain a loan to cover only the cost
of improving the land. In some cases, part of the loan amount may be used to
help with construction costs.
Constructing New Buildings
Once the improvements on a new land parcel have been completed, businesses
often obtain commercial construction loans to begin the building phase.
Construction loans are not meant to be used as a source of long-term funding.
Once the construction phase is complete, the buildings are usually sold to pay
off the loan.
Purchasing Real Estate
Commercial real estate loans are used to purchase existing buildings.
Typically, businesses use these types of loans to buy office buildings,
shopping centers and industrial buildings. These loans may also be used to
expand the buildings or make needed improvements to the properties. Sometimes,
commercial real estate loans are used to refinance existing loans.
Purchasing Equipment
Equipment loans are used to buy either new or used equipment. Depending on the
nature of the business, the type of equipment may vary. For example, a
construction company can use a loan to purchase heavy equipment, and a farmer
may use a loan to buy agricultural equipment. Other types of businesses may
also take out equipment loans to purchase office equipment. Generally, because
the equipment serves as collateral, these loans are not hard to obtain.
Expanding the Business
Companies can use business loans as expansion loans to open additional locations, improve the
existing locations and purchase supplies and office furniture. These loans can
also be used for purchasing franchises and other businesses. Because a growing
business means that the company is doing well and making a profit, expansion
loans are usually not hard for a business owner to obtain.
General Business Needs
From time to time, most businesses need some extra funds. Taking out a
short-term general loan can be used to make needed repairs and light
improvements. Small businesses often use these loans to purchase new inventory,
hire seasonal employees or to replace necessary office equipment.
Obtaining the right type of loan can help a business survive and grow. Some
companies seek business loans to get started, and others require extra cash to
expand. With the right financing, any business has a chance to succeed.
