Bootstrapping your company, or otherwise planning to take it quickly to a debt-free model, is a common goal for many entrepreneurs. On paper, it seems like a sound way to bring a company into full profitability, allowing you to begin drawing income from it. The issue, though, is that cash flow is the lifeblood of any business, and plans that diminish it can stifle long-term growth and lead to a bottlenecking of the company’s ability to service its market. That’s why small business financing is important for all phases of your growth plan, not just the early ones.
By keeping open credit options on the horizon, you maintain your preparedness so that you can take advantage of opportunities for growth without totally depleting you reserve funds. By refusing to spend those funds unless they are absolutely necessary, you also bolster your own credit by having a larger pool of assets and funds on paper, and that makes it easier to obtain low interest rates and other preferential terms on future credit packages.
For short-term financing options like credit cards, revolving accounts, and the like, this can even mean paying off charges before too much interest accrues. Simply put, if you make an inventory purchase on credit and then turn around enough stock to cover the credit before the first month’s interest compounds, then you can avoid using any of your own money while paying minimal fees and interest payments. This leaves your general funds available for marketing, payroll, equipment purchases, and other larger outlays.
For longer-term financing, considering an SBA loan or other method of small business financing that offers you a low interest rate can mean financing larger purchases without compromising position in the marketplace. This can lead to better competitiveness by making it possible for you to rapidly expand to meet the needs of new customers or to move into new markets, allowing you to directly challenge more established businesses for market share. The result is that your company is poised to move more quickly into being an industry leader in your community, and eventually, maybe your state… or maybe your goals are bigger than that.
No matter what trajectory you have set for your new company, the ability to rapidly adapt to changing circumstances needs to be central to any plan for success. The regular use and maintenance of a variety of credit options, and the matching of payment terms and interest rates to return on investment and the loan’s purpose, are both essential steps in toward this goal. Without them, it can be incredibly difficult to find the money to leverage during time-sensitive opportunities, and that hurts your overall competitiveness. Unless your company is lucky enough to have a basic cash flow that is far in excess of any conceivable need for funds, small business financing needs to be an important part of your overall business plan.
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