Three Benefits of Business Credit
September 9, 2024
True or false: Well-funded businesses with healthy revenue should never borrow money.
If you answered false, high-five! You’re correct, and you’re on to something few may know—beyond the obvious benefit of access to capital, business loans also equip a company with several lesser-discussed advantages:
Cash flow: Many businesses, and especially those in the ag-centric state of Iowa, experience cash flow fluctuations. A business loan smooths out the peaks and valleys, helping businesses more easily maintain payroll and other operating expenses during slower times.
Building credit: Just as having a good credit score is helpful for an individual’s journey to financial freedom, businesses also benefit from a proven track record of on-time debt repayment. When the time comes for a larger loan with better terms, a top-tier credit score can help.
Ownership retention: Business founders may be tempted to give up equity in their business to fund growth-oriented initiatives. Yet, partnering with venture capital and other investor types can come with some significant and hard-to-shake strings. Bank loans help maintain independence.
These are just three of many additional benefits to business credit access. Any one of our Bank Iowa commercial loan officers would be happy to share more with your organization.
Dipping business loan trends may signal unnecessary risks
Despite the many benefits, the use of traditional business loans appears to be decreasing. During our last check-in with business clients, just 19 percent expected to take out a business loan in the coming year. This follows a troubling trend observed by the Federal Reserve – the percentage of businesses seeking traditional financing has declined in recent years.
At first glance, a reduction in reliance on business credit may seem like an indicator of strong financial health. However, as the Fed observed, the slide may instead be due to an increasing number of businesses turning to alternative financing platforms, such as crowdfunding and peer-to-peer lending.
Moves like this come with risks, including higher interest rates, hidden fees, sneaky terms and cybersecurity/data privacy concerns. Importantly, partnering with new, unproven (and often unregulated) lenders also carries a significant opportunity cost. Every financial product a business takes out with a fintech startup chips away at the business’ relationship with stable, reliable (and highly regulated) financial institutions. That can make other banking products more expensive or out-of-reach when a business is in need of a fast, affordable liquidity boost.
Community banks, for example, thrive on organic growth. They often adhere to a business model that empowers loan officers to make their customers’ lives as easy as possible with things like lower interest rates, access to treasury management services and personalized consultation with financial experts.
Bank Iowa is one such bank. And, we are just about to open a freshened-up location in Johnston that will be filled to the brim with commercial loan officers eager to talk through your goals. Visit our website to connect with a local lender to learn more about how Bank Iowa can help your business thrive.