Behind every successful business is a healthy flow of capital. Having access to funds ensures that you have the money available to stock your inventory, purchase office equipment, and make needed business trips in order to network.

Though money is money no matter where it comes from, there are proven benefits to building your company’s credit by using business loans versus personal loans.

Business Debt Grows Businesses

Borrowing money is a huge advantage for all businesses, but there is evidence that businesses with debt in the company’s name are more likely to be more successful. A recent study that examined almost 5,000 companies dating back to 2004 found that companies that used business bank loans to finance startup costs reported nearly double the revenue of a startup with no debt. The study also found that startups with non-business debt, such as a personal loan or an equity loan, had 57% less revenue when compared to the company with debt to its name.

What This Means for You

So what’s behind the success of a startup that puts debt in its own name? The first factor is that businesses are more likely to succeed if they ask for bank loans up front. While the process is quite timely and tedious, getting a jumpstart on a bank loan puts your company on the path to success.

Getting approved for a loan in your company’s name proves that lenders took a look at your company and saw enough potential to back your business with their own money.

Businesses that borrow using a personal loan or line of credit have much less room to grow. Personal borrowing constrains the business and can tie up money that could be used for future investments.

What Business Borrowing Options Are Available?

Just as there are all sorts of types of personal loans, there are also many borrowing options that are strictly for business purposes. Here are some options to consider in funding your company’s growth and future.

Installment Loans

An installment loan is paid back with equal monthly payments. The payments are applied towards interest as well as the principle balance. An installment loan can be used to meet a variety of business needs. Once the lender has approved your application and the contract has been signed, you’re given the full amount of the agreed funding amount.

Small Business Loans

A small business loan is a government loan that’s offered through traditional banks and credit unions. This type of loan is backed by the Small Business Administration (SBA) and is geared towards helping startups and new companies get onto the path towards success.

A SBA loan can be used for:

  • Commercial mortgage
  • Purchase of supplies, equipment, machinery, etc.
  • Refinancing existing debt
  • Establishing a credit line

Small business loans greatly benefit small businesses as it’s much harder for new companies to get approved for traditional lending options. With an SBA loan, businesses can have access to the funding needed to get a jumpstart.

Line-of-credit Loans

A line-of-credit-loan is a loan that typically lasts about a year. The loan can be renewed for an annual fee. Some lenders require the balance on the credit line to be paid off 30 days before the contract year ends.

Having a line of credit provides access to emergency funds in the event of slowed cash flow or an unexpected expense. A line-of-credit loan can be used for purchasing inventory, paying for operating costs, or for business cycle needs.

These loans should not be used for real estate or equipment purchases.

Getting Approved for a Business Loan

Knowing what business loan options are available to you is only the first step in the process to getting your business up and off the ground. The next step is to know how to get approved for a business loan.

To start, focus on your personal and business credit standing. As a new company it’s unlikely that you have a lengthy business credit report. Because of this, you’ll need to take a close look at your personal credit as lenders will use this to determine your credit worthiness as well as your risk as a borrower.

To improve your credit score, pay off debt, pay more than the minimum payment, and avoid applying for other loans or lines of credit around the time you apply for a business loan.

Another crucial step in boosting your chances of getting approved for a business loan is to have a solid business plan. This plan should provide thorough details of your company including financial projections, management structure, and market research.

Conclusion

The key to getting your business up and running is to know which borrowing option will be the most impactful. As a startup, your best bet is to apply for a business loan so that you can start your company off on the right path.