There isn’t a business on the planet that couldn’t use an infusion of money. Having a little extra liquidity can ease cash flow concerns or help cover next month’s expenses.
In fact, many companies take out small business loans for the purpose of making ends meet.
A loan sometimes makes sense even if you don’t actually need one to stay afloat. When invested wisely, the money borrowed can help grow your business — and the returns will far outweigh any interest payments you need to make.
However, not all small business investments are created equally. If you do borrow money, those funds should be used for one of two things:
- Reduce expenses
- Increase sales
If you can achieve either (or both) of these goals, you’re guaranteed to grow your profits.
Below are five proven small business investments to get you started.
1. Purchase More Inventory
Buying additional inventory is one of the most popular uses for small business loans, especially among retailers. The reason this strategy works is simple: The more you carry, the more you’ll sell.
Stocking up on extra inventory also allows you to:
- Smooth out seasonal valleys and peaks. For example, you can get much cheaper wholesale rates on holiday items if you buy them months in advance.
- Receive discounts on bulk items. You can either keep the savings for yourself or pass them on to your customers (which can help generate more sales).
2. ‘Green’ Your Operations
Another great strategy is to use a small business loan to make your operations greener and more sustainable. This not only benefits the environment, but it also helps to reduce many of your costs:
- Installing energy-efficient light bulbs means using less electricity.
- Glazing windows can help lower monthly cooling bills.
- Going paperless allows you to cut costs in many ways.
Depending on your budget, you might even consider installing solar panels. Instead of buying expensive grid electricity from your utility company, you’ll be able to generate your own electricity.
The beauty of going green is that these investments pay for themselves over time, and you continue reaping these financial benefits long after surpassing the break-even point.
Better still, customers increasingly prefer doing business with environmentally responsible companies. So, if you use your small business loan to “green” your operations, you’ll likely attract more users and generate higher profits.
3. Invest in Better Marketing
There are a lot of ways you can leverage a small business loan to reach customers (and generate more sales). Many companies redirect resources toward attracting a steady stream of new users.
In other words, they focus on customer acquisition to generate more business. However, it’s often cheaper and more profitable to focus on customer retention instead, as:
- Existing users already know and trust you.
- They’re already familiar with your offerings.
- They don’t need as much educating or convincing.
One of the best ways to keep users coming back is to set up a loyalty program. To learn how to get started, be sure to check out our companion article here.
4. Invest in Better R&D
Another way to retain customers is to offer stellar products, services and user experiences.
Every industry is different, so how each business improves its offerings will vary. Here are some examples to help you brainstorm potential opportunities:
- As a software developer, you can improve your products by adding more bells and whistles.
- As a restaurant owner, extra training for staff can help improve the service you offer.
- As a baker, buying a larger oven will allow you to create more pastries in less time.
- As an e-merchant, redesigning your website can help increase online conversions.
5. Expand Your Operations
Many businesses borrow money to grow their operations, such as larger offices or new equipment.
You might be tempted to pursue this strategy, but before doing so, it’s worth taking a close look at the new sharing economy — it’s easier than ever to rent equipment, tools and office space on short-term leases (versus owning these things).
In fact, a growing number of companies forgo long-term leases and rely exclusively on the sharing economy. They’re able to grow their operations while keeping expenses to a minimum.
Thanks to the Internet, every business now has instant access to a huge pool of talented freelancers around the globe. Rather than hire full-time employees, you can recruit short-term contractors who don’t need benefits, pensions or healthcare.
Again, this approach is so attractive that many businesses rely exclusively on contractors.
Note: You don’t actually need a loan to join the sharing economy, but having a little extra cash allows you to expand your reach and pursue many more opportunities.
Getting the Most out of Your Small Business Investments
A loan can open a lot of doors, but it can also backfire if you don’t have a solid plan. After all, you will need to pay back the principal plus the interest.
In order to get the highest possible returns from your small business investment, it’s important that you:
- Outline your goals in advance.
- Decide how you’ll use the money.
- Shop for competitive rates.
If you’d like to learn about growing your business with payment acceptance options, we're here to help. To get started, schedule a free consultation with our merchant services team today.