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If you have already availed of an instant business loan, it is important to determine where to use these funds and how to use them effectively.
Published Date – 05:29 PM, Mon – 28 August 23
Hyderabad: A business requires capital to keep it growing and running. However, it isn’t always possible for businesses to have a steady cash flow. This is why businesses generally have to rely on external aid in the form of business loans to plug the funding gap.
If you have already availed of an instant business loan, it is important to determine where to use these funds and how to use them effectively. If you have already availed of an instant business loan, it is important to determine where to use these funds and how to use them effectively. The choice of investment will depend on the company, sector, and operational conditions. Read on to learn how to effectively utilise your short-term business loan funds.
Achieve Short-term Goals Outlined in the Business Plan
If you want to use your instant business loan effectively, start by referring to the business plan you drafted. This will usually outline areas that need the funds, and how to devote them effectively. If such a plan does not exist or it needs revisions, use the funds to conduct the required research to have a robust plan. It is very important to identify the aspect of business that needs money to be spent.
If multiple aspects of your business need a cash infusion, prioritise core areas of operation. This can include purchasing equipment, inventory, marketing, etc. If it is your first business loan, spending on procuring inventory and scale may be the right step. However, as the business grows, priorities shift towards scaling up.
Inventory Stocking
To meet customer demands, businesses need to maintain stocks and inventory. Almost 31% of businesses use instant business loan funds to replenish their inventory. These numbers are even higher with retail businesses going into a particularly profitable season in the year. Keeping your inventory up to date helps you provide customers with a wide range of products, keep them happy, and increase repeat customers. Shortages in inventory only hurt your ability to cater to demand, and this can have negative impacts on the business.
Cover Day-to-Day Expenses
You require a regular cash flow to keep a business running its daily operations smoothly. These costs include paying for labour, rent and marketing expenses. Instant business loans are also called working capital loans for this reason.
Businesses can use them to fulfil their daily cash flow needs, and these can be quite high depending on the industry. For labour-intensive businesses, working capital is key to ensuring employees are paid on time and that any surges in demand are dealt with optimally.
Moreover, having sufficient working capital is the only way to ensure that emergencies do not bring work to a grinding halt. Businesses without adequate reserves are vulnerable, and such loans can help create the much-needed financial safety net to avoid issues.
Moreover, streamlining your business’s administrative side can also help you utilise loans effectively by avoiding spending blunders. By sticking to a pre-planned budget, you can see where the money is being spent and cut spending if need be.
Purchase Equipment
If you start a new business, much of your capital will go towards purchasing the required machinery and equipment. Upgrading existing machinery to expand production capacity may also increase costs quite drastically. Purchasing up-to-date machinery and equipment will provide various benefits, including increased production capacity and lower maintenance costs. A short-term business loan can provide ample funds to purchase new machinery and equipment.
Moreover, thanks to the flexibility in tenure, you can comfortably set a timeline that aligns with the current finances, while generating income with the new equipment. Over time, you can devote these profits to prepaying the loan.
Refinance or Pay Existing Debts
If you already have multiple existing business loans, it makes sense to consolidate your loans into one. By opting for an instant business loan to pay for existing loans, you can save on interest and streamline payments. Moreover, loan consolidation allows you to choose an instant business loan with a lower interest rate. This allows you to save significantly on interest going forward, especially if you plan to prepay.
Channel into Marketing
Businesses constantly need to infuse money into their marketing strategy to attract new customers. Besides new clients, retaining existing customers is also important. For this purpose, you will need to spend to hire new staff or invest in cutting-edge marketing software and tools. Any business can benefit from spending more on marketing channels; targeting the right audience is the only condition.
Investing in marketing will allow you to increase brand visibility, attract more customers, and generate higher revenue. So, using your instant business loan funds to improve and streamline your marketing strategy would be wise. Some business loans also offer the Flexi Loan facility, which works similarly to an overdraft. This means you can repay interest-only EMIs in the initial phase to ensure cash flow remains stable.
Recruitment and Training
A great business is equal parts cutting-edge machinery and fully-stocked inventories, and human resource and effort. Thus, businesses that intend to perform well must invest in their employees. Training them is one way to ensure competencies stay at the required level all through the growth cycle. An instant business loan opens up the opportunity to hire expert staff or even pay for special training camps to upskill existing employees.
The affordable interest rates on these loans are key at this juncture, as they help keep outgo efficient. It is clear that the most challenging part of getting an instant business loan is not getting it approved but using it effectively. It is important to ensure that funds are spent on activities that help businesses grow and generate more revenue.
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