Growing Online Income

How to leverage small business lending?

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The number one cause of failure among small businesses is cash flow. Cash is king, as they say. Expenses can somewhat be in your control, but sales cannot. Day-to-day expenses can be the initial issue when experiencing cash flow issues, but sales is likely the root of the issue.

The capacity for sales can be a real hindrance. Not being able to fulfill orders, not being able to have the equipment to expand and not penetrating the market. This actually tends to be the number one use of small business loans: purchasing inventory and/or equipment.

The rise of online lending has been invaluable to small businesses. The immediacy and accessibility of the finance available is what keeps them on their feet and allows them to grow. Being able to tie over orders by raising some money within a week is something that was never possible before. Bank loans would require too much bureaucracy. With higher standards for credit rating and longer administration times, small businesses would be lucky to even get a loan.

Currently, small business lending is changing the landscape. Many online lenders have a response to application time of 1 to 2 days, and most do not require securities. To say it can be a short-term stop-gap is an understatement. They can literally be applied for on-demand, and fit within a reasonable customer response time (i.e. If the loan is used to fulfill orders).

Many small businesses are actually under-geared, meaning they can significantly benefit from taking out some debt. Debt is a very useful tool, and it is very often poorly utilised. When used in a measured way however, it can be the driving factor in a company’s growth. Releasing equity and dilutions are popular with small companies, but is quite often over-done in the early stages. It is difficult to get the capital structure right of a company, but short-term loans do not have to influence it much, as they are that: short term. The company can soon rebalance after their growth period and principles are repaid.

Of course, there are clear caveats. Quick, unsecured business loans are not going to be the cheapest in the world. High interest can be a real problem, so making sure the loan is never used for more than a couple of months is crucial. If the money raised is necessary for longer without full repayment, perhaps equity is the way to go.

Here are some scenarios where the small loans are most useful:

Cash flow

Around 85% of small businesses fail because of a failure in cash flow. The ways small business loans can be used in order to improve cash flow are plentiful. Firstly, as mentioned above, they can be used in order to fulfil orders. Being able to afford more stock and personnel can mean increasing revenue immediately. The loan itself can act as an immediate solution to meet liabilities, but this is only sensible if something else corrects too in the future because of course, the loan will run out.


Business often will benefit from increasing their production, or other forms of expansion such as opening a new store. This can increase the profits and cash flow of the business. Sometimes the start up costs exceed your budget, and you begin operating despite the things only being half done. The extra injection of cash can help get off the ground in the early stages.

Economies of scale

Having more spare cash is a better way to benefit from economies of scale. The increase in production may lead to a lower cost per unit to make. This may apply to your business more than you imagine. For example, having more personnel can give them more room to specialise, the output or even just sales may be exponentially greater. The extra cash may allow the business to order larger volumes of stock. Having this stronger bargaining power can mean getting a lower price per unit, which will increase the gross profit margin.


Staff costs are one of the most difficult challenges for startups. Having the cash to outsource some of the non revenue generating tasks can lead to more time for you to focus on the sales and stuff that brings in more money. For example, the extra cash may mean you can outsource your bookkeeping and administration. This extra 5 hours per week can allow you to bring in new clients, make more sales, network and so on.

There are many circumstances where small loans are not appropriate. For example, a failing business should not seek more financing if it knows it cannot repay it. Furthermore, it should only take what it needs for a clear plan. The interest payments can add up fast due to the high lending rate, so this is not a time to “make the most of the situation” and get as much money as possible. Extra financing is likely possibly regardless, so just take it as and when you need.