Para la version en español, oprima aquí. | Eby contributed to this blog
Starting a small business is a rewarding journey, but it takes time, effort, and often means taking out a loan. For many, a loan is a practical step toward growth. Let’s explore why you might consider applying for a loan, what to have in place before doing so, and how the Center for Rural Affairs can support you every step of the way.
Why apply for a loan?
A loan can be a powerful tool for small businesses when used strategically. Loans enable owners to take advantage of growth opportunities. As a small business owner, you might face challenges like cash flow gaps, space constraints, and other “growing pains.” A loan can provide the financial support to meet those needs and continue growing. For example, securing a loan might enable you to buy a food truck, upgrade machinery, or buy a building to attract new customers or increase inventory to keep up with demand.
Preparing to apply for a loan
Smart use of debt requires thinking through how the borrowed money will translate to more efficient operations and profit. Does the increased profit justify the cost of the loan? How quickly will you pay the loan off? What will your cash flow look like after the loan and how will that line up with a repayment schedule?
Before applying for a loan, you’ll need to gather key documents that demonstrate your readiness and credibility as a borrower. Required documents can vary depending on whether you’re a startup or an established business, so it’s important to reach out for an initial consultation to discuss current circumstances and goals.
Generally, you’ll need:
- Financial records: bank statements, tax returns, and pay stubs
- Collateral information: documentation of assets you can use as collateral
- A plan: a clear, detailed explanation of the loan’s intended use
Are you a first-time borrower? Check out our top five tips for first-time borrowers for more details.
How big a loan do you need?
Begin by assessing your specific financial needs. Do you need to upgrade equipment? Purchase inventory? Lenders will want to know exactly how much you need and exactly how it will be spent. Don’t estimate your request; do your research and provide an exact figure.
Loans don’t have to be large to make a difference; even small amounts can fuel meaningful improvements. For example, a coffee shop owner could get a $5,000 loan to buy a new espresso machine and upgrade a seating area. This investment could result in improved drink quality and a more inviting atmosphere, leading to an increase in customer traffic.
How should a loan be used?
Loans are versatile and can be used for a variety of business purposes that contribute directly to growth and sustainability. Common uses include:
- Equipment and inventory: Upgrading machinery or stocking products
- Working capital: Covering everyday operating costs
- Real estate: Securing a storefront or office space
- Marketing: Funding campaigns to expand your reach
Nebraska small business owners: What is the Microenterprise Tax Credit?
Alongside loans, business owners may have access to potential tax credits. These funds can help decrease the costs of your business startup or expansion.
For example, in our home state, the Nebraska Advantage Microenterprise Tax Credit Act provides a refundable individual income tax credit to small business owners who show growth over a two-year period. This tax break can help lower your tax burden, freeing up funds to reinvest in your business. It’s an appealing incentive for anyone looking to expand or make improvements, as it rewards the hard work of growing your own business.
Other states may have similar programs.
How the Center for Rural Affairs can help
When considering loan options, we emphasize a responsible approach, encouraging business owners to view loans as tools for empowerment rather than burdens. If you’re thinking about a loan to support your business’s future, the Center for Rural Affairs is here to help. Check out these three incredible small business success stories that highlight how responsible borrowing can drive business growth.
We provide educational resources and assistance, one-on-one consulting, and ongoing support. Our goal is to help you approach the lending process with confidence. You can learn more about our loan products and additional resources here. Reach out today to learn how responsible borrowing can be part of your journey to success.
