Americans have a lot of misunderstandings about debt, especially when considering small business loans. Entrepreneurs tend to glamorize the idea of “bootstrapping” a small business, and doing it with minimal start-up cash. But sometimes small business loans can be the best thing to happen to your business.
It’s true that keeping expenses low and making aggressive moves to find reliable revenue are smart strategies for any new company. But many small business owners don’t realize how powerful it can be to borrow money — at the right time, for the right reasons, and with the right plan.
Small business loans are nothing to fear. They can be used to transform your business and level up your life.
Let’s look at a few truths of small business loans and how they can help your business.
Too often, Americans think that being in debt is some kind of moral failing or weakness. But debt is not inherently bad or good — debt is a tool.
It’s true that in your personal finances, there are some kinds of “bad debt.” If someone borrows at a high rate of interest for a depreciating asset like a car or everyday consumer goods, that is “bad debt.” Instead of helping you get ahead, having bad debt drags you down.
But small business loans help your company grow and invest in the future. Small business loans are often worth more than they cost, because they help your company become an appreciating asset — by creating a new product, reaching a new target market, or changing your business model for the better.
Business loans are also called “leverage” because the debt can create a “lever” effect to lift your business to a higher level. There’s a reason why so many big companies are always looking to borrow money — because borrowing money for businesses is often a good deal.
2. Small business loans don’t have to be too risky
When you borrow money in your personal life, whether it’s a home mortgage, an auto loan, or a credit card, the bank evaluates your creditworthiness to see how likely you are to repay the loan. Riskier borrowers have lower credit scores. And it can be financially risky to borrow too much for a house payment you can’t afford, a car that’s worth less than you owe on it, or credit card bills that you can’t afford to pay off each month.
Small business borrowing doesn’t have quite the same level of risk. Yes, you need to repay your small business loans, of course. Yes, your small business credit card application might get declined if you don’t have enough history of solid business revenue to show to the bank.
But with small business loans, you’re not just borrowing based on the value of a house or a FICO® Score. Your small business is bigger than you, and being a successful business owner can give you more borrowing power.
You can borrow based on your business’s track record of earning money. You can borrow against the value of your business equipment or other assets that your business owns. You can borrow based on a vision for the future that the borrowed money will help create.
3. Small business loans can be flexible
Small business loans don’t have to be a one-time deal, where you have to make a single high-stakes decision about how much to borrow, and then hope to get approved. One of the best ways to borrow for your small business is to apply for a small business line of credit. This is a flexible way to borrow as much or as little as your company needs from one month to the next, while working within a certain credit limit — kind of like a credit card or a home equity line of credit.
With flexible borrowing from a small business line of credit, your small business can ramp up or scale down your borrowing based on changing business needs, seasonality of demand in your industry, or other financial targets. And you can repay the borrowed money in a flexible way that suits your cash flow (while meeting minimum payment requirements).
Bottom line
Small business loans are nothing to fear — they can be an opportunity to elevate your business. If you want to invest in growth, buy new facilities, expand into new markets, launch new products, or hire more talent, small business loans can help serve as a bridge from your present day vision to a more prosperous future.
