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5 Top Ways You Can Use Your Small Business Loan

May 7, 2019 | Small Business Loans

When you’re a small business owner, getting from Point A to Point B in your entrepreneurial pursuits may require some outside financial help.

One versatile type of financing many entrepreneurs can access is a small business loan from a community, nonprofit lender. Compared to banks, these lenders can be more flexible when it comes to qualifying for a loan. That’s because the central focus of a community lender is to get financing to more people, especially underserved communities such as women, minorities and military veterans.  

As a business owner, your needs can evolve. Whether you need additional funds to cover day-to-day costs, an equipment purchase, or the build-out of your new space — a small business loan can help you achieve your specific goals.

Here’s a more in-depth look at the wide range of uses for a general small business loan:

1) Everyday operations

Working capital is a commonly used term in the business world. If you’ve never heard of the term, just think of it as your business’ everyday operations. Examples include payroll, rent and marketing.

Related: Are Small Business Loans Hard to Get?

A working capital loan is designed to help business owners who don’t have enough cash available to cover these types of expenses. It is not designed to fund long-term assets. Such financing can be a great tool for companies that experience extreme fluctuations in business due to seasonality. Working capital loans in that instance can help entrepreneurs get through off-peak seasons.

2) Equipment/machinery

Whether you’re a restaurant owner or a healthcare provider, you rely heavily on equipment in the day-to-day flow of your business. One way to use your general business loan is to fund the purchase of equipment. Whether you need it to scale up operations or a piece of machinery is on its last legs, a general business loan can help you fund the needed equipment or machinery.

3) Tenant improvements

As a business owner, if you’re moving into a commercial space that’s essentially a shell — you’ll most likely be responsible for funding all or part of the buildout. This is also known as tenant improvements, or TIs.

Related: How to Protect Yourself Before Starting Tenant Improvements

TIs can include installing a new kitchen for a restaurant or offices for a law firm. The landlord may give the renter — the small business owner — an allowance to pay for all or some of the tenant improvements. But anything above that amount is paid for by the renter. This is where a general business loan can come in — to finance any remaining project costs.

4) Inventory

Certain businesses such as clothing retailers or specialty food stores rely on the sales of their inventory to generate income. Inventory can range from the latest fashion must-haves to gourmet pickles. In this case, a general business loan can help small business owners buy inventory in bulk to properly stock their shelves and potentially take advantage of discount pricing for orders of a certain size.

5) Debt refinance

With the rise of lenders who deal only in the online space, small business owners can get funded in a matter of days for as much as $500,000. But wait…there may be an expensive catch.

Download our free ebook: Pros and Cons of Online Business Loans

Many of these small business borrowers will eventually face paying annual rates of up to 50% to 150% over the life of the loan. Compare those rates to those from community lenders such as CDC Small Business Finance, which range from 7.25% to 14.5% APR.

In recent years, those who’ve taken out higher-interest online loans have come to CDC to get out of their cumbersome loan payments. Due to our flexibility, we’ve been able to refinance dozens of online-only business loans to more affordable general business loans, helping clients save hundreds even thousands of dollars each month. With those savings, these small business owners are now able to focus on growing their business.

How else can you use a small business loan?

What type of small business loans should I consider?

A community lender such as CDC Small Business Finance typically provides two types of affordable, general business loans: SBA and non-SBA.

  1. SBA loans are backed by the federal government, specifically the U.S. Small Business Administration. Organizations such as CDC Small Business Finance are certified by the SBA to provide SBA loans to small business owners. Thanks to the SBA’s backing, community lenders can finance businesses that most conventional lenders would consider a bit riskier due to a credit blemishes or the fact they’re a startup. There are two main general business SBA loan programs:
  1. Non-SBA options. Community lenders such as CDC Small Business Finance may also have non-SBA loan options you can consider. We offer low-cost business loans through our Small Business Finance Fund, which focuses on financing African American and Latino businesses. We also partner with the city of San Diego to provide affordable loans in certain underinvested communities, in this novel initiative.  

How can I qualify for a small business loan?

Regardless of how you use a general small business loan, you must meet the eligibility requirements of the lender you’re working with.

A community, nonprofit lender generally has less stringent eligibility requirements compared to a conventional bank. For example, with CDC Small Business Finance, we ask for a target minimum credit score of 620. A traditional banks usually requires a 680 or higher.

Also before approaching a lender, be sure to calculate how much financing you need and for what purpose. Having a plan will let your lender know you are serious and ready for your financing.


Want to know how you can qualify for a general business loan at CDC Small Business Finance? Skim: How to Get a Small Business Loan in 4 Steps.


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