Achieving business growth can be challenging with the odds stacked against you, as over half of businesses in Australia fail within their first five years.
Running a successful business can depend on several critical financial decisions, including the process of acquiring a commercial loan.
There are many options available to businesses, making picking the right option challenging for all types of companies!
So, in this article, we’ll discuss commercial loans and how these loans may facilitate business expansion.
We’ll define commercial loans, discuss why businesses seek them, and end with ways to leverage loans for strategic expansion.
Let’s get started!
What Are Commercial Loans?
Commercial loans are designed to assist businesses with various expenses and needs, such as with purchasing equipment or marketing strategies.
Commercial loans differ from other business loans as they are more general than term loans or lines of credit. Additionally, commercial loans can be secure or unsecured.
Secured commercial loans are given with collateral for risk management by a lender, whereas unsecured commercial loans do not require collateral.
Overall, commercial loans define a broader category of loan options that are more versatile in application.
When And Why Businesses Seek Commercial Loans
Businesses seek commercial loans when several expense types need attention, such as marketing costs or equipment purchases.
Commercial loan’s edge over other different loan types is the fact that it can cover virtually any segment of a business’ expenses. Take a look below for a detailed list:
Expanding operations
Operations costs involve the ongoing, day-to-day activities of a business, such as employee salaries, rent, insurance, and more.
These costs can become overwhelming for a business, so a commercial loan can cover a portion of the expenses to help it become more stable and profitable.
Buying equipment or machinery
Businesses are encouraged (and sometimes required) to purchase new equipment or machinery to ensure that they’re operating at or above their specific industry standard.
However, purchasing equipment outright can be very expensive, so a commercial loan could partially or fully cover this expense.
Launching new products or services
Launching a new product or service may come with an increase in customers, which could unpredictably increase overhead costs.
A commercial loan can cover some of the marketing and overhead costs associated with accommodating the influx of new customers and businesses.
Managing cash flow gaps
Most businesses experience breaks in cash flow due to seasonal expenses, hiring increases, and other factors.
As commercial loans are broader, a business has more leeway to manage cash flow gaps within reason.
Acquiring another business
Business acquisition costs can be steep, so a commercial loan makes the merger easier from a financial perspective.
Also, commercial loans cover a versatile range of expenses, and acquiring a business often entails increased spending costs. To help defray hiring, facility upgrades, expansions, and more, companies usually turn to commercial loans for more breathing room.
Renovating or expanding locations
Commercial loans can even cover renovation or expansion costs.
Expansion is an exciting part of owning a business, but sometimes, businesses need a little boost to open a new location. Commercial loans make these prospects much more feasible and manageable.
Funding marketing or advertising
Marketing costs can range from AUD$130 to $360 per hour or $5,000 to $14,000 per month.
A commercial loan can temporarily cover those steep costs, avoiding them from appearing on a business’s expense report until the marketing efforts pay off.
Handling unexpected expenses
Some businesses opt to take out a commercial loan to cushion unexpected expenses that revenue or other income sources cannot cover.
Investing in research and development
Businesses need to remain at the cutting edge, but often, this would require a company to invest in unavoidable research and development costs.
Using a commercial loan to fund R&D within a business may lead to increased profits later on.
Managing seasonal revenue fluctuations
If your business is seasonal, such as a company that sells fireplaces or an ice cream parlor, it may not be easy to make ends meet during slower seasons. Commercial loans might be beneficial to get you through the quieter months.
How To Leverage Commercial Loans For Strategic Expansion
Now that we’ve discussed the benefits of commercial loans, let’s explore how to leverage loans for strategic business expansion!
Invest in revenue-generating activities.
It may be time to make a list of all of your business’s activities, from selling to housekeeping. Are there some processes that can be made shorter or cut entirely from the list?
With minor cuts here and there, you might see a big difference in how far your commercial loan would go.
Diversify your product or service offerings.
If you have access to a commercial loan, consider diversifying your product or service lines to enter an untapped market in your industry or field.
Expand into new markets or locations.
Similar to diversifying your product or service offerings, expanding into new markets and locations may provide access to an eager customer base. However, to cover moving costs or marketing campaigns, a commercial loan may be a smart move.
Improve operational efficiency
Sometimes, a big waste of operational resources and energy can be due to a lack of cash flow.
With an increase in financing through a commercial loan, a business owner can hire more employees, invest in higher-quality equipment, and more.
Upgrade equipment or technology
Speaking of equipment, having access to newer (and better) equipment may translate to greater business efficiency and more satisfied customers. Commercial loans can fund investments in new tech or better equipment.
Invest in marketing and advertising.
Commercial loans can also be funneled to cover marketing costs. Businesses rely so much on marketing and advertising efforts, so wanting to fund ad campaigns is always a reasonable use for your commercial loan.
Hire and train skilled employees.
Creating a foolproof hiring process is a terrific way to leverage loans for strategic expansion. Investing in application development, recruiter efficacy, and onboarding materials are all ways to attract and retain good employees. A commercial loan can make all these possible.
Monitor and adjust your business plan.
A business plan could be a great launching pad for your company.
However, that doesn’t mean it’s set in stone! Part of being an adaptable business is finding new ways to improve your business plan, which should be consistent with your present status and future goals.
Commercial loans help you take things in stride and roll with the punches. Having enough financial resources could allow you to stay flexible, and a commercial loan might help you achieve that.
Prioritize debt repayment
It is a good idea to center debt repayment on your expense list, as interest rates and other factors can make repaying more challenging over time.
Key Takeaway
Commercial loans are a powerful tool for businesses looking to cover a variety of expenses.
With a commercial loan, a business might be able to cover marketing costs, customer acquisition, overhead management, and more!
Commercial loans can evolve with a business and its changing costs, making them intriguing options for both new and old businesses.
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