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How to maximize Small Business Administration (SBA) loans for working capital without overextending requires thoughtful planning, smart forecasting, and making sure your loan supports your growth goals (and not just your short-term needs).
At Business Funding Group LLC (BFG), we help profitable businesses like yours secure SBA loans. We have decades of experience, and do not charge a fee unless your loan closes! The key to utilizing SBA loans is taking advantage of the opportunity without putting your business in a risky position.
What Can Working Capital Cover?
Working capital refers to the funds you use for your day-to-day business operations. These can include:
- Payroll
- Rent
- Marketing campaigns
- Inventory purchases
- Seasonal cash flow gaps
- Software subscriptions
- Insurance and taxes
- Vendor payments
You should use SBA loan funds not just for covering expenses, but also for furthering the business.
Start With Creating a Solid Budget
To avoid overextending, you first need to create a realistic working capital budget. A budget should include both essential cash flow and strategic growth investment. Think about some questions you could ask yourself.
Example questions include: What do I need the funds for? How soon will the investment start paying off? What are my fixed monthly expenses? Can I afford the loan payment? How much cushion do I want for unexpected costs?
Forecast Return on Investment (ROI) Before You Spend
Before using any portion of your SBA loan, forecast the expected return. Consider how soon you will see a return and how much that return will be. It is important not to overestimate ROI, as this can lead to overspending.
For example, if hiring an assistant allows you to take on three additional cases per month, the ROI on that hire could be significant. In contrast, if a business begins a marketing campaign without optimizing the audience for their niche, it could bring in less revenue than the cost of the campaign.
Ensure You Have Enough Cash Flow
One of the biggest mistakes businesses make is taking on debt with monthly payments they cannot sustain.
To avoid this, match the repayment schedule to your revenue cycle, build in an extra cushion for dips or slow months if your business has inconsistent cash flow, and take advantage of longer terms when possible to keep your payments as low.
The SBA allows up to 10-year repayment terms for working capital loans. That gives you more flexibility and helps preserve cash flow!
Avoid Overleveraging
Be smart about how you take on debt for your business. This means not stacking too much at once. An SBA loan strategy should lower your stress, not add to it.
The following tips can help you avoid overleveraging:
- Know your debt service coverage ratio
- Do not borrow more than you need
- Avoid using short-term funding (e.g., credit cards or merchant advances) alongside SBA debt
- Keep track of your loan covenants and reporting requirements
BFG Can Help You Borrow Smarter
Maximizing SBA loans for working capital without overextending requires careful planning and a clear understanding of your business’s needs.
We can help you determine the best loan program and strategy to meet your business goals. BFG has a vast network of lenders that we connect you with, and we handle the loan packaging to ensure you have the best possible terms.
Contact us today to start pursuing an SBA loan the smart way. We can discuss your goals, eligibility, and financial position during a 10-15 minute no-obligation phone call.