Top Ways People Use Small Business Loans
Starting a new business is nothing if not expensive. Many entrepreneurs will start off with great ideas, but, unfortunately, those ideas need the backing of a lot of capital in order to get off of the ground. Some entrepreneurs have the blessing of a trust fund, a rich family member, great credit, or even angel investors to help with the initial costs of a business. However, more often than not entrepreneurs must find capital themselves.
One of the most popular ways to fund a small business initiative is to apply for a small business loan. Since money doesn’t grow on trees, and since you have to pay your loan back, it’s important to both maximize the money you borrow, and to know what entrepreneurs typically spend their money on when starting a business. Here are some of the top ways people can expect to need to use their small business loans.
Top Ways People Use Small Business Loans
Your expenses will vary depending on what type of business you are starting, but there are some expenses that nearly every entrepreneur will need to count on at the beginning. They are as follows.
Salaries – Everyone wants to get paid, especially you, so you will need to figure out how much you are going to pay yourself, and how much you will need to pay your staff.
Rent/Lease – Unless you are conducting your business solely online, or from a building you already own, you will need to pay rent. Shop around to find a place that is well within your budget.
Utilities – On top of the rent, you will also need to plan to pay for public utilities. This will include everything from water, gas, waste, electricity, and more. If you have questions about what types of utilities you will need to pay, you can contact both your landlord and the city.
Website – You will need to pay for creation of a website, hosting, domain names, and help from a web developer. If you plan on having a small business blog, which you should, you will also need to consider the costs of hiring a writer and a designer to help you with content. Also, if your business is technology heavy, you may want to hire a full time IT professional for ongoing help. You never want to run the risk of having your website go down in this day and age.
Supplies – Not everyone thinks of the cost of supplies as an expense, but it’s amazing how much simple office supplies can run you every month. You will want to create a budget for things like postage, printer paper, pens and pencils, and anything else you may need just to keep your office up and running.
Initial inventory – Inventory is another expense that can vary greatly depending on your business. For example, if you provide a service like graphic design or copywriting, you won’t need much inventory. On the other hand, if you are opening up a restaurant or a jewelry business, you will need to analyze your projected sales, and make sure you have enough inventory on hand from the get-go in order to meet your demand.
Insurance – Oh, don’t we all love insurance. While insurance can be expensive, it’s definitely something you don’t want to ignore. In fact, in most cases, it’s illegal to ignore business and/or health insurance. Before you start your business, make sure you do all of the research to determine what type of insurance you will need, and how much it will cost to cover your back side when needed. Insurance may be expensive, but it’s much more expensive and risky to go without insurance.
Taxes – Taxes are another expense that is important to count on paying. Before you get set up as a business, consult the IRS and an accountant. Your accountant will help you set up your business in a way that makes the most sense with paying taxes. Additionally, he or she will be able to give you an estimate of how much you should expect to pay, whether it is in a lump sum or in percentages. This will help you know how much of your money you need to put aside for taxes.
Registration and Licensing – Registration and licensing fees are generally inexpensive, but they are important to pay in order to legitimize your business. Every business owner should count on paying state and local registration and licensing fees.
Maintenance – Maintenance of your business property isn’t something you will always need, but it’s important to set a little money aside for emergencies. You never know when you may need to contact a plumber, a handyman, or an electrician, for example, and you want to be able to pay for it when you do.
Legal fees – Just as it’s important to hire an accountant for help, it’s important to hire a lawyer to make sure you have your legal bases covered. You can call around and get quotes, but you should definitely hire a lawyer in the initial stages of starting your business.
Advertising/Marketing – I can’t tell you how many businesses I have seen fail because they didn’t set any initial and ongoing money aside for advertising and marketing. You may have the best business in the world, but if no one knows about it, you won’t get customers. And, customers are essential for growing sales. Remember the best way to turn a profit is to have a great advertising and marketing strategy.
Office Furniture & Equipment – Thankfully, office furniture is usually a one-time expense that can be easily estimated. The same goes for any equipment you may need.
Operating Capital – One of the last things you will need to count on before starting your business is to have operating capital. Even if you have all of your furniture, computers, advertising materials, and so on, you will need to have operating capital. You and your business partners will need to sit down to determine how much you need in order to keep your doors open. Take this amount you come up with and then double it for good measure.
Emergency buffer – What about all of those unplanned expenses? When you start a new business, you will think you have thought of everything, and then all of a sudden you will be hit with an expense that is unplanned. For these situations, it’s important to have an emergency fund available.
These are the most common business expenses. Of course, that number will vary from business to business depending on your industry, company size, and location, but everyone will generally need to use their small business loan to pay for the above expenses.
If you aren’t sure how much all of this will run you, then here is a handy expense calculator to help you calculate the costs. Remember that as you estimate, you will want to estimate high. There is nothing worse than running out of money before you have even started your business. The more money you have to work with, the more you will be able to make, and the easier it will be to turn a profit. Also, remember to maximize your funds, you will want to over-budget and underspend as you plan to use your small business funds.