What can I Borrow Money for in My Business?
In general, you can borrow money for any legitimate business purpose.
Companies use the various types of lending available for:
- Managing seasonality
- Accounts receivable float
... and a lot of other business purposes.
A more important question might be, "what should I use the money for?"
As use an example, I was once involved in a business where we needed to spend $100,000 a month on advertising to feed leads to our salespeople.
The leads weren't likely to turn into a sale (money in the bank) for about 90 days.
In order to feed our salespeople for 3 months we needed access to $300,000 - which we didn't have.
When is Expensive Money not Expensive?
We talked our advertising vendor into floating us on a revolving basis for 90 days in exchange for a 10% markup on our advertising costs - or 3.33% per month.
On an annualized basis, that's a 40% interest rate, which is an expensive loan.
However, without that money, we wouldn't have been able to grow our business...
... and we would have missed out on an important market opportunity.
To us, the money wasn't "expensive" because the alternative was not being able to grow our business.
Similarly, if you are in a similar situation, "expensive" money might not look so expensive (but get the "cheapest" expensive money you can get...)
More Small Business 101:
- What kind of loans are out there for small business?
- What can I use the money for?
- What does small business financing cost?
- Do I qualify for a loan?
- Can a new business qualify for a small business loan?