What Can a Small Business Loan Be Used For?

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Many small business owners ask themselves this question when they are first considering different loan programs.  The answer to “What can a Small Business Loan be Used for?” is any business-related expense.

The use of capital must be directly related to helping your business prosper. The one caveat is that the use of funds is only for the business that is applying for the loan.  The idea is to prevent a plumber from applying for a loan to start a printing company.  If the plumber wants to expand and grow his current business, then he can use the funds in any manner he sees fit.

Business lenders like banks and credit unions might have loan covenants that limit the use of bank loans for specific equipment or projects.  Think of it this way.  You couldn’t apply for commercial real estate loans and use the funds to buy a tractor.  On the flip side, the online lender that offers restaurants merchant cash advances can use the business funds for virtually any business expense related to that restaurant.

Online business lenders generally make the process easy.  There is minimal paperwork with a one-page loan application, a wide range of loan types, and a maximum amount equal to what the banks offer.

There are pros and cons to any business decision.  When a prospective borrower asks, “Can a business loan be used for personal?” the answer is always, “No.” These are strictly loans for business and not a personal loan.

Check out the following eight examples below of how you can use a small business loan to help your business.

How to Use a Small Business Loan

Have you ever thought about what a business loan can do for your business?   Every example listed may not apply to your particular business.  However, small business owners across the country almost always need additional capital.
  1. Equipment

For many businesses, having the right equipment is essential for their operation. For example, if you own a pizza parlor, you’re going to need pizza ovens to make pizzas for your customers. Equipment loans can help you secure that piece of equipment you need to succeed.
  1. Inventory

Any business that centers around selling goods is going to inventory. A small business loan can help you purchase inventory for your business. Just make sure that you have a well-formulated plan to sell your products with a substantial margin or return on investment.
  1. Expansion

Whether you want to expand or renovate your current location or even acquire a new one, a small business loan may be used to help you grow your business and improve your cash flow. Expanding your location(s) at the right time can do wonders for your small business and your profits.
  1. Employee Payroll

Making payroll is almost always stressful, especially if cash is tight.  A small business loan can be used to help ensure that your employees are paid, allowing you to keep morale from dropping.
  1. Marketing

Getting customers in the door and remaining loyal to your brand is essential for any business. With a loan, you can conduct the marketing campaign necessary to reach more potential customers than you would otherwise.
  1. Refinance or Pay-off Debt

It may seem contradictory to acquire a loan to pay off debt, but thousands of small business owners have used a small business loan to refinance or consolidate their current debt. A lower interest rate can equal a lower monthly payment, which can help when you are trying to balance your books. SBA loans and various lines of credit can have low-interest rates and can be beneficial in the consolidation process.  Remember that the SBA and lines of credit look at your personal credit score and require a personal guarantee.  Unfortunately, bad credit doesn’t work with these two solutions. However, depending on your current rates, business credit cards may work for you.  In some circumstances, bad credit loans will work.
  1. Day-to-Day Expenses

Making sure that your business runs smoothly and that the lights stay on takes both time and money. Many small business owners use a line of credit or a working capital loan to help cover the costs of their day-to-day expenses.
  1. Upgrade Technology

New technologies are coming out all the time. Upgrading your systems can help improve the performance and profitability of your business. If you are still using old or obsolete technology, maybe investing in your business is just what the doctor ordered.

How does a small business loan work?

A business loan is like any other type of loan.  The lender agrees to provide the borrower with a set amount of capital.  The borrower agrees to repay that money with interest over a set period.  Those payments, depending on a variety of risk factors, can be daily, weekly, or monthly with most loans online.  The loan amounts can be anywhere from $10,000 to as much as $30 million. Loan repayment terms can range from 6 months to 5 years (or more with SBA loan types).

Sunwise Capital

At Sunwise Capital, we understand how hard it is to run a small business. Sometimes you need to take out a loan for that little boost to help your business take off. If you have any questions about what you can use a small business loan for, or if you would like to see if you qualify for a loan, contact us today. We’d be happy to answer any questions you may have.
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