All businesses rely on capital, whether to grow or just to keep the business alive. For many businesses, external capital in the form of a business loan can be something that keeps the company not just alive, but growing and developing. However, despite the fact that virtually all large companies use external finance, many small business owners are reluctant to borrow money.
‍

Apart from mortgages, personal loans have become largely synonymous with various types of consumer loans. These types of loans are used to pay for property that the person cannot really afford and that has a diminishing value. However, borrowing as a business is different. When you take out a business loan, it is used to strengthen liquidity or to make investments in the company. These will lead to a likely increase in the return of the company, so it should be seen as an investment.
‍

In fact, not using external financing in your business can cost you money. If an investment is held back for a while because you choose to save for it instead of financing it with external funds, not only do you risk the investment becoming obsolete by the time you can afford it, but you also miss out on the returns it would have generated while you were saving for it. By financing purchases, you can also put your business in a position where you have already sold the asset you financed by the time you have to pay for it, allowing you to use the money in the meantime.

To make it easier to know when a business loan might be right for your company, here are some concrete tips on when and why companies take out loans.
‍

Expansion and growth
The most obvious time when companies need business loans is during expansion and growth. Expansion usually requires major investments to be made. This may involve hiring staff, developing a new product or moving to new premises. Expansion usually also requires resources to invest in, for example, marketing and creating an infrastructure that can support the expanded business. The majority of businesses rarely have the cash to do this without external capital. However, by financing it with business loans, it becomes possible for companies to make the investments they need to make to develop and grow the business without having to compromise on day-to-day operations.

‍
Cash flow management
Most businesses encounter cash flow problems at some point, especially smaller businesses where the flow of incoming and outgoing payments is not as constant as for larger companies. Customers may pay late, and at the same time salaries and bills need to be paid on time. Many small businesses also have distinct seasons in their operations, with revenues differing markedly between high and low seasons. Business loans can help balance out these fluctuations and smooth the flow of finances.

‍
Investment in equipment and technology
Technology is constantly evolving and sometimes businesses need to invest in new equipment or software to stay competitive. Whether it's a new machine for the factory or updated software, these investments can be expensive. Business loans enable companies to make these necessary investments, which in turn lead to improved productivity, efficiency and profitability.

‍
Stock purchases
For businesses selling physical products, it is important to have a well-stocked warehouse. Sometimes it can be profitable to purchase large quantities of goods to get a discount or to prepare for a peak season. A loan can allow you to make these strategic purchases without emptying your coffers. It also allows the costs of stock purchases to be spread over a longer period and the goods to be sold before the company has to pay for them.

‍
Managing unexpected expenses
Life as a business owner is full of surprises and sometimes this means that you may incur unexpected expenses that are beyond your control. Equipment can break down, a customer can go bankrupt and orders can be delayed. In such situations, a business loan can provide flexibility and peace of mind and help you cope with these events without affecting your day-to-day operations.

Business loans serve several purposes for companies and can be used in a variety of ways. It is more than just a tool to address immediate financial needs. It is a strategic investment in your company's future and a resource to drive growth, manage cash flows and ensure long-term stability. Whatever your industry or the size of your business, you can create a competitive advantage by understanding and taking advantage of business loans.

‍