How to get the most out of a business loan

It is common to hear that entrepreneurs have to resort to certain cash injections to get around the day-to-day business life and thus continue to grow their businesses. Asking for a loan is normal to meet this need, but the challenge - which many times it is - is not in obtaining that loan, but in investing it in such a way that it becomes a good debt for your project.

Many people believe that asking for a loan will end up greatly affecting their finances due to the famous interest rates, so they prefer not to ask for one; But the prior planning, the analysis of your needs and goals, and the investment strategy of that credit can bring you benefits superior to the payment of said interests in the short and medium term.

What should you ask yourself before requesting a loan for SMEs?

It is essential that before requesting a loan for your SME, you take a few moments to answer this question:

If I ask for a loan, will the benefit for my company be greater than the interest that I will pay?

Answering this question will take you on a research trip of the different business loan options that can better meet the needs of your business, evaluate your financial reality, your ability to pay and learn about different offers and their interest rates; but it will also lead you to better plan how to invest your credit to get the best out of it.

After you have made the decision to apply for a loan, we recommend you measure the impact it will have on your business by measuring the return on that investment (ROI). According to Entrepreneur, ROI "is the most common profitability index" and allows us to measure the returns on an investment against its cost.

Calculating the ROI is not complicated and you can do it through the following formula:

ROI = Total profit - investment / investment

Now, if you want to obtain the result expressed as a percentage, you just have to multiply it by 100. That is: ROI = (Total profit - investment / investment) X 100.

The ranges of a good ROI usually vary depending on the industry in which you do business, but generally speaking, obtaining an average annual return between 5% and 12% is considered a good investment. Less than 5% is bad, and more than 12% is excellent.

Can I invest my credit for SMEs in whatever I want?

Now that you know how to evaluate what to invest in in order to return a good debt, you can also make strategies on how to use your credit options to play with the interest in your favor. One option to do this is the combination of credits. Yes, we mean business loans and credit cards.

The credits for your business are usually higher amounts and with better interest conditions. On the other hand, credit cards - despite having higher interest rates than a loan for SMEs - usually offer benefits and rewards such as interest-free months or cashbacks that could also generate value to your ways of investing.

If your needs and goals can be solved with your regular cash flow, you could cover them with your credit card in order to earn those rewards in favor of your business. The importance is in always paying the total of your card to avoid paying the interests linked to that type of credit.

On the contrary, if the investment is stronger, use your credit for SMEs to cover that need and always monitor that your ROI is being met according to the calculations you previously made. Knowing how to mix your credits will allow you to improve cash flow, obtain benefits for each peso spent and take advantage of an interest-free credit, while the earnings of your investment cover the interests of the largest SME credit.

Ideas to get the best out of your SME credit.

There are many ways to use your SME credit effectively , but if you are wondering what type of investment you can make with your SME credit, here we share some recommendations that are focused on growing your business and obtaining an ROI that allows you to have the security that your loan turns into good debt.

  • Upgrade or buy new equipment . Your productivity is linked to the status and quality of the team you work with, since your income is obtained from it. Have the essentials that ensure higher income well located to keep them in optimal condition. Also, consider investing in technology such as a good point of sale system or a CRM (Customer Relationship Management) to benefit your internal processes, your administration and the relationship with your customers.
  • Hire new staff. Invest in talent and more training to better cope with your increase in customer visits and keep your staff happier. This is also reflected in a better shopping and service experience in your business.
  • Invest in marketing and expand your business. Create marketing campaigns that promote your image and positioning and even expand your territory to more locations so that new people meet and consume you, this will inevitably lead to growth.
  • Stock your inventory. Many times you find opportunities to stock your inventory with great promotions and discounts, and investing in it could ensure cost benefits that will increase your income with appropriate strategies.
  • Improve your products. Many times, making improvements in the services and products that your customers already know helps increase sales. These changes can range from a packaging change to the improvement of some aspect of the product.

Remember that you can also focus your investment efforts on covering larger loans, paying suppliers on time to obtain benefits or discounts and even creating a stability fund for the months when productivity is not very high, but always make sure that your investment ultimately benefit your business with all the information we have shared with you.

At Oyster we are interested in helping you to be clear about all the information you need to be able to better evaluate your options and financial decisions; Therefore, if you are looking for a card for your business that helps you better visualize all your movements when using an SME loan, do not forget to check all the benefits we have for you.

Now, you already have more options and clarity that will guide you to get more out of your business loans and we would love for you to share more good tips that will help more entrepreneurs like you to reach their maximum business potential