One requirement to qualify for a U.S. Small Business Administration (SBA) loan is for a small business to have a healthy annual revenue. Most small businesses that receive a SmartBiz SBA loan earn $250,000 or more per year.
However, to some business owners, that notion doesn’t make sense. The SmartBiz Facebook page frequently has questions posted about this topic. “If a small business is making that much money, why would they need to get a loan?”
Related: How to Get a Small Business Loan
It seems counterintuitive to acquire small business debt, but there are many reasons to seek funding when your company is thriving. Here are several ways an SBA loan can fuel growth for your small business.
1. Refinance Your Debt
One of the most popular uses for an SBA loan is to pay down—or pay off—existing high-interest debt. Entrepreneurs often acquire expensive debt when launching a business. Without having a strong business credit profile, entrepreneurs might have to turn to a credit card, a line of credit, or an alternative lender with high interest rates and short payback terms. Some loans even require daily payments. This type of debt can wreck cash flow and spell disaster for a small business. Just a single interest percentage point, even less, can save you thousands of dollars each year—money you can reinvest to fuel expansion. Once you’ve been in business for a few years and built up your credit rating, funds are much more affordable. If you meet the requirements, an SBA loan is an excellent option to help erase debt and increase cash flow.
2. Purchase Equipment
From copiers to computers to vehicles, small businesses need equipment to run successfully. An SBA loan can help finance those big-ticket items. For example, SmartBiz helped a meat distributor in Michigan purchase a new refrigerated truck, a chiropractor in Indiana buy diagnostic equipment, and a Washington, D.C., area caterer purchase a much-needed van. With 10-year terms and low rates, an SBA loan can be much more affordable compared to other options.
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3. Stock Up on Inventory
SkateXS is a wildly successful skateboard business in Southern California that ships products worldwide. Last holiday season, demand was so high they were unable to fill orders. With an SBA loan, they are stocking up early to prepare for the December rush.
In addition to having inventory on hand when needed, small business owners can save a bundle by purchasing in bulk. SkateXS owner Bryan Tracey used to place orders for 1,000 skateboard stickers at a time. He now buys 5,000 stickers and it’s much cheaper.
“Having cash on hand is a difference maker,” Tracey says.
4. Hire Fresh Talent
Small business owners wear lots of hats. But they can find themselves wearing too many. If it’s time to bring in fresh talent, a small business loan can help cover salary, benefits, and other costs associated with bringing on an employee. Without enough cash on hand, it might be impossible to bring on employees that can help you expand. Take a look at your business plan to discover if funds can help finance one or more new hires. Fit Small Business co-owner Marc Prosser needed to beef up his staff in order to meet his growth goals. He’s using proceeds from a SmartBiz SBA loan for $350,000 to add 20 staff members.
5. Purchase or Refinance Real Estate
With 25-year terms and low interest rates, an SBA loan is a great option for small businesses looking to refinance an existing commercial real estate mortgage or buy an owner-occupied commercial space. The SmartBiz team helped owners of an auto body shop take a maturing five-year loan and turn it into an affordable 25-year fully amortizing solution. Along with the refinance of the property, the SBA loan proceeds were used to refinance existing small business debt. This helped cash flow, putting the small business in a much stronger financial position.
6. Obtain Working Capital
Working capital is the difference between current assets and current liabilities and can be a positive or negative amount. Working capital are funds available to pay a company’s current debts. It’s also the cushion you can give your short-term creditors. An SBA loan can be used for working capital that can then be used in a variety of ways like paying taxes and handling unexpected expenses.
The Bottom Line on SBA Loans
The Wall Street Journal recently posted an article for parents titled Why Children Need to Learn the Benefits of Debt. However, this passage is relevant for small business owners, too:
“Taking on debt allows us to reach our aspirations—to acquire assets that are of value to us—such as a house, education, reliable transportation or starting a business. These things define the American Dream, and they are difficult to achieve without debt.”
If you’re living the American Dream through small business ownership, an SBA loan could be the best way to help you reach your entrepreneurial goals.
More answers to pressing questions
SmartBiz makes SBA loans easy. Create an account today and you’ll discover in about five minutes if you’re qualified for a low-cost, long-term SBA loan without an impact on your credit report.