This article contains general information and is not intended to provide information that is specific to American Express, or its products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
11 Uses of Funds in Business
With a strategic plan, small business owners will be less likely to waste the opportunity to put the funds to work for their business. To develop a plan, consider these 11 ways to use small business funds.
1. Purchasing inventory
One of the many common reasons that business owners pursue a loan is to purchase inventory. Many businesses need a significant amount of inventory to keep their companies running smoothly, and this can sometimes be difficult — especially if a business is just getting started or experiencing unusual demand.
Using a small business loan to buy inventory could help a business to respond quickly to consumer demand, prepare for peak shopping seasons, and set it apart from the competition.
2. Investing in equipment
Unfortunately, small business owners aren’t always prepared financially when a piece of equipment breaks down and needs to be replaced. Other companies may put off growing their business because they don’t have the funds to purchase the necessary equipment for expansion.
A small business loan could help companies get the funds they need to upgrade, replace, or purchase more equipment.
3. Hiring staff
Whether small business owners are ready to hire their first employee or need to bring on additional staff to help meet growing business demands, hiring staff is a considerable investment. Business owners could consider using funding to engage a hiring agency to help recruit new employees or provide a signing bonus for new hires.
4. Building a website
In today’s digital marketplace, it’s nearly impossible to compete without having an attractive website that’s easy to navigate and use.
What many new business owners may not realize is that the cost of building a killer business website goes beyond just buying a domain. In addition to domain and hosting costs, there are also fees involved with using a drag-and-drop website building service.
If a business owner is planning to hire a professional, web development services can range anywhere from $1,000 to $100,000 depending on business needs. A business loan could help cover these start-up costs for a new website.
5. Developing your marketing
Although having an effective website is important, small businesses still need to market their products or services. If small businesses plan to handle their marketing in-house, there are a variety of marketing tools that can help promote the business online and off.
Many businesses also choose to focus on their core business and outsource their marketing to a contractor or agency.
6. Covering operational expenses
When business is slow, or if companies find themselves dealing with unexpected costs, they may sometimes need short-term help to cover recurring operational expenses — like utilities, accounting, or staffing.
A business loan could help companies get the funds they need to keep things running smoothly in the meantime.
7. Expanding your business
Fifty-nine percent of small businesses apply for funding in the hopes of expanding their businesses or taking on opportunities. There are many costs to consider when expanding a business. In fact, many of the uses for a business loan that are outlined above are expenses that one might incur during a growth stage.
Whether needing to buy more inventory or equipment, hire more staff, or expand other aspects of a brand, a business loan could help give small business owners the initial funding they need to take their business to the next level.
8. Managing cash flow
Cash flow describes the process of how a company receives and disburses funds. The way companies manage the money that enters and leaves their business could be the difference between success and failure. Small business owners may need short-term financing to help them cover their recurring expenses during a cash flow crunch or to capitalize on opportunities to grow profits.
If borrowers have access to short-term financing, they probably won’t have to turn down a new opportunity just because they lack available cash in their bank account. If extra training, updated equipment, or a larger inventory order would contribute to the bottom line, a line of credit could provide the solution.
9. Weathering unexpected problems
Running a business usually means confronting a series of risks. Some threats to a company could reduce income or increase costs. Often, the way that companies are able to manage risks determines their success and, in many cases, their longevity.
No matter how well a business plans, unexpected problems arise from time to time. If stores have to close because of foul weather, an employee wrecks the company car, or some other unanticipated problem arises, small businesses could find themselves strapped for cash.
Without the resources to fix or even wait out certain problems, even a profitable and solid business could fail. When small business owners have a line of credit or other types of financing, they might feel more prepared to deal with unexpected expenses.
10. Improving your business’ creditworthiness
Lenders want proof that a company manages debt well. If a business never borrows money, it might be tough for it to build a credit history.
Using funding from an online or traditional lender for sound business reasons may help build credit history. If business owners establish a good history of making prompt payments and managing credit well, they might be able to get more favorable rates or terms on their financing.
11. Leveraging expertise
Business owners also might use credit lines to access advice and training from experts in their fields. For example, if a company has a sales team and it determines they would be more successful with a new script and a new approach, the CFO could decide to hire a sales consultant to help draft the new script, train the sales staff, and implement the program.
Similarly, if business owners decide that new software would speed up their business processes and lower expenses, they might choose to use their business line of credit to hire a software consultant to help them choose, install, and use the software.
How Can Businesses Get Funding?
Before figuring out how to use funding, small business owners need to secure it. Some common forms of funding include:
- Grants: Many regional governments, non-profits, and corporations offer small business grants, which usually supply lump sum funding that doesn’t need to be paid back. Grants are often tailored to specific kinds of small businesses, so owners should review eligibility criteria before applying. Getting a grant is never a guarantee as the process tends to be competitive.
- Small Business Administration (SBA) loans: SBA loans are backed by the federal government. The SBA partners with lenders to decrease risk and get borrowers better repayment terms. SBA loans often require proof of strong annual revenue, and extensive personal and business documentation.
- Small business loans: Borrowers may be able to get a small business loan at a low interest rate and with favorable repayment terms, but they might require collateral and strong annual revenue. The application process can be made faster and more flexible by applying online and having some documentation already
- Business line of credit: While credit cards usually have high interest rates, many also offer sign-up bonuses, introductory 0% APR periods, and cash back rewards that could make a credit card an interesting option. Small business owners can also opt for a business line of credit, which offers a pre-set line of credit from which business owners are often able to draw upon as needed. With a business line of credit, borrowers only pay a fee on the amount they use.
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