A Beginner's Guide to Making the Most of Small Business Loan Money

A Beginner's Guide to Making the Most of Small Business Loan Money
Amy Fontinelle
on March 18, 2020
Read in 4 min

Whether you have a restaurant, a retail store, a mobile business, or some other small business, you may sometimes lack the cash flow to meet your company’s needs.

Fortunately, your dreams and hard work need not go to waste: A small business loan can tide you over.

Still, getting approved for business funding is only half the battle.

Once you’ve been approved, you must then decide how to best re-invest those funds for the best possible ROI.

How to Use Business Loan Money Wisely

This general guide for borrowers explores some of the best ways to maximize ROI depending on: 

  • what kind of business you have
  • & which loan product you have.

Best Restaurant Loans:

Restaurants have large capital expenses for storefronts and equipment, but banks consider them risky endeavors.

So what’s a restaurateur to do?

SBA Loans for Your Restaurant Business

Whether you have a corner cafe or a fine dining establishment, a loan through the Small Business Administration may be your best bet, though they are competitive.

They also have a lengthy application process and a relatively long wait for approval.

If you aren’t in a hurry though, seriously consider an SBA loan because you’ll get a relatively low interest rate and longer repayment terms than any other form of financing.

Equipment Financing for Restaurants

Equipment financing, which uses the equipment you finance as collateral, is also a solid option for purchasing appliances and furnishing your dining room.

It offers limited paperwork and quick access to funds (and doesn’t put your entire business at risk in the process.)

On the other hand, it may still require a down payment and depreciation will erode your tax deductions over time.

Best Loans for Retailers:

As a retail store owner, you could invest your loan funds in merchandise display cases, shelving, inventory, decorating, or other renovations.

You might need to borrow money to make payroll when business is slow, or if business is booming you may need that little extra to expand.

The best loan for a retail business will definitely depend on your unique business objectives.

Lines of Credit for Retailers

In a temporary downturn, a business line of credit can really come in handy.

Money is available quickly when you need it (though a lender could shut down your line at any time) but you don’t have to borrow more than you need and you can repay it quickly when business picks up.

Term Loans for Retail Businesses

If business is thriving and you want to expand, go the traditional route and stick with a term loan.

With good credit, strong revenue, and an established business history, you can secure a large lump sum in as few as 48 hours with the luxury of repaying it over several years.

Merchant Cash Advances for Your Retail Store

For quick and convenient access to working capital, request a merchant cash advance.

This is not the cheapest form of financing, but MCA’s are a great financial tool for businesses processing a lot of credit card transactions.

A merchant cash advance makes a lump sum available and the the daily or weekly payments will fluctuate along with your credit card sales.

You may not feel like you have as much cushion as you would with a term loan, but you can get an MCA if you have bad credit, and the process is relatively easy.

Best Loans for Businesses on Wheels:

As the economy bounces back and gas prices stabilize, unique service business ideas are gaining steam.

Mobile business opportunities (where you run your business out of the back of a truck or van) might include the increasingly popular food trucks, lawn care, flower trucks, or mobile pet grooming just to name a few.

Below, we’ll focus on mobile dog grooming as an example.

What You’ll Need to Start a Mobile Dog Grooming Business

To help your canine clients look their best, you’ll need to invest in supplies such as

  • shears
  • clippers
  • combs
  • aprons
  • grooming tables
  • shampoo
  • dryers
  • and safety supplies.

You’ll also need a truck for mobile grooming, plus any funds to paint or wrap your vehicle with your logo.

Personal Loans for Mobile Businesses

If you’ve already got a suitable truck or van, a personal loan may be a good option to finance your remaining start up expenses.

In particular, a personal loan is a good choice if you need to buy many items up front and you’re motivated by a fixed repayment schedule.

Mobile Business Equipment Financing

On the other hand, equipment financing might be necessary to help offset the cost of buying a vehicle if you don’t have it yet.

To save money, consider using equipment financing to purchase a used vehicle.

And keep in mind: You aren’t always required to put all of the loan proceeds toward new equipment (check the fine print of your loan agreement to be sure.)

Be sure you understand whether the interest rate is fixed or adjustable, the loan’s origination fee, and how long you have to repay the loan.

This will help you to tailor a budget around the constraints of your loan and your brand new mobile business!

Best Manufacturing Loans:

Manufacturers need raw materials, a plant, and machinery to make products– some may even need a warehouse for storing inventory.

For the same reasons as with restaurants, SBA loans and equipment loans are most attractive since it’s a high-risk industry, but you have plenty of collateral to pledge.

Short-Term Loans for Manufacturing Businesses

On the plus side, a short-term business loan can help you quickly ramp up when you have a large order to fill.

With a short-term loan, you’ll get quick access to working capital with limited paperwork, even if you have bad credit.

However, interest rates tend to be high and you’ll need to keep up with fixed payments despite seasonal business fluctuations.

Invoice Financing for Manufacturers

And invoice financing, while expensive, can help with cash flow when your customers don’t pay quickly enough.

You’ll get fast cash advances from the financing company, which will then collect your customers’ invoices to repay the advance.

The longer your customers take to pay however, the more invoice financing will cost you.

The Bottom Line

Once you’ve secured small business loan money, you’ll need a plan to use those funds wisely.

If you spend money just because it’s there and don’t evaluate the best way to use every penny, your business will be no better off than it was before you took out the loan.

But with a detailed plan, you can maximize your return on investment and pay it back on time, leaving your business stronger than it was before the loan.

To learn about funding for more types of businesses, see:

Additional Funding Options for Auto Shops

Business Loans for Trucking Companies

Loans for Transportation Businesses

Construction Business Loans

Business Loan Options for Wholesale and Distribution Companies

All About Business Loans for Nightclubs

A Complete Guide to Business Loans for Funding a Bar

Amy Fontinelle Finance Journalist

Amy Fontinelle is a writer, editor, and personal finance expert.

Her articles have appeared at Investopedia, Bankrate, MassMutual.com, The Simple Dollar, Interest.com, Yahoo, Forbes.com, SFGate.com, Bankaholic, Mortgage-Calc.com, Saving Advice and other sites.

Amy’s clients include personal finance websites, financial institutions, public policy organizations, academic journals, and professional economists.

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Late Payments Hurt Your Credit Score

Please be aware that missing a payment or making a late payment can negatively impact your credit score. To protect yourself and your credit history, make sure you only accept loan terms that you can afford to repay. If you cannot make a payment on time, you should contact your lenders and lending partners immediately and discuss how to handle late payments.