How to Use a Business Loan to Combat Inflation in 2023 - NBC

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How to Use a Business Loan to Combat Inflation

10 min read. December 28th., 2022 by Amanda D'auria

Inflation is at the forefront of everyone’s mind. Whether you’re an entrepreneur or a consumer, the rising costs of the products and services we love most have forced many people to limit their spending and rethink their financial budget. 

Business owners are often the first to feel inflationary pressure. As prices rise on materials they need to conduct business, entrepreneurs will have to routinely adjust their prices to stay profitable and keep their doors open. It’s not an easy situation to endure, but with a capital source at your disposal, it makes the whole ordeal much less stressful.

Business loans exist for opportunities and challenges alike. Whether you need additional capital to pursue a revenue-driving activity or you need funds to support your operation during periods of high inflation, a business loan can provide some much-needed liquidity and financial stability during irregular periods in your business’s history.

A business loan can help you combat inflation and, more importantly, give you a better chance of coming out on the other side as a stronger organization. Here are a few ways that you can use a business loan to combat inflationary pressures, courtesy of a market leader in the business financing space.

What Is Inflation, and How Can It Impact Your Business?

Inflation is an economic concept that describes the rate at which prices rise over time. It's a normal part of any economy, but it can also cause major problems for both businesses and consumers if not managed properly. 

Basically, inflation occurs when too much money is chasing too few goods and services. This means that each unit of currency buys less than it did before, and prices go up as a result. The most obvious ways inflation affects individuals and businesses are through higher prices for goods and services; however, it can also have other long-term consequences like reduced purchasing power, increased debt payments, and slower economic growth.

Inflation is a major challenge when it comes to running a successful business. The cost of materials and labor rise as prices go up, which increases your overhead and cuts into profits. Inflation also affects the buying power of customers by reducing their spending potential and limiting their budgets as a whole. As a result, businesses may see sales decline and profit margins shrink. 

In an inflationary economy, businesses must adjust their strategies in order to stay competitive and maintain their customer base. Not only can rising costs strain your cash flow, but they can also reduce your ability to acquire capital or invest in new projects, resulting in slower growth over time.

How Can a Business Loan Help to Combat Inflation?

Fortunately, entrepreneurs have one key resource that can help them stay ahead of rising costs—business loans. Here are a few ways that you can leverage debt financing to stay competitive during periods of high inflation.

Cover cash flow management costs, such as inventory purchases and payroll expenses.

Rising costs make your expenses much more overwhelming. With a business loan, you can cover these costs while focusing on other areas of your business. If things take a sudden downturn, you can keep your team on payroll as you work on building back up, but financing is useful even if you aren’t in dire circumstances. For example, an entrepreneur that encounters an opportunity to grow can secure a business loan and use the funds to cover expenses and preserve its cash flow, all while they take advantage of the opportunity and position themselves to grow.

Increase your buying power to take advantage of bulk inventory orders

Fluctuating costs can make buying inventory and maintaining a stockpile nearly impossible. But, with a business loan, you can increase your buying power and take advantage of any bulk discounts offered by suppliers. Not only will you have the inventory you need to meet customer demand, but you’ll also be able to enjoy a financial buffer if you’re able to secure the inventory at a discounted rate.

Invest in new technologies and projects to increase productivity and profits.

Inflation doesn’t mean that you should stop growing. Rising costs may complicate your growth, but with a business loan, you can secure the funds you need to take advantage of opportunities that come your way. You can invest in new technologies to increase productivity and efficiency, lock in new supplier relationships that reduce overhead, or move forward with expansion plans—the choice is yours. As long as you manage your funds responsibly and keep your eye on the big picture, you can grow in any economy.

Which Type of Business Loan Can Help Me Combat Inflation?

Business loans come in all shapes and sizes, with each one having unique benefits for certain situations. Here are a few types of business loans that you can leverage to support your business during periods of high inflation.

Term Loans

Business term loans provide a lump sum payment you’ll repay over time. This option is best when you know exactly how much your plan will cost or if you want to increase your cash reserves to protect against an unexpected downturn.

Business Line of Credit

A business line of credit is the most flexible financing option available to entrepreneurs. Once you open your line with a lender, you can draw physical cash up to a certain limit and use the funds for almost any business purpose.

Revenue-Based Financing

Revenue-based financing leverages your future sales for cash in the short term. While you won’t be able to secure the full value because of the lender’s fee, this option can help support your business until it becomes profitable again.

Equipment Financing

Inflation makes everything more expensive, including the equipment you need to stay competitive. If something breaks or you discover an opportunity to secure additional assets, you can use equipment financing to make the purchase much more manageable.

 

Higher interest rates make borrowing more expensive. While the cost of capital might deter you from financing your business at first, the most important thing to focus on is what your business will look like after you’ve used the funds to grow. An inflated interest rate becomes negligible if your growth offsets the cost, so make sure to consider your business's long-term needs instead of getting caught up in the short-term cost of your financing.

How to Apply for a Business Loan

Applying for a business loan is as easy as finding a lender that offers them, but reaching an approval that fits your business comes with a degree of challenge.

First, you’ll need to determine the amount of money you need and how you plan to use it, as well as provide evidence of your income and credit history. Lenders generally want to see your business bank statements, credit score information, and any other relevant documentation that shows your profitability, so make sure you have this information readily available as you start the process.

Once you have everything prepared, you can submit an application through a bank, credit union, or online lender. They will review your information to see if you qualify, then approve or deny your application based on their criteria. This can include credit score minimums, industry restrictions, and more, so make sure to research the lender you’re applying with beforehand to avoid waiting weeks for a denial.

Streamline Your Search for a Business Loan With National Business Capital

Inflation is a challenge for everyone, but it’s not something you can ignore as you manage the day-to-day operations of your business. Fortunately, there are options available to you, like business loans, lines of credit, and other types of financing, that can help you stay competitive during a financially constricting time in your history. However, remember that business financing isn’t limited to cash flow challenges and problems; It’s also an advantageous resource to help you continue your growth despite the economic climate.

Growth isn’t something that you can put off. You might never get that opportunity again, so you’ll need to find ways to take advantage of any opportunities that come your way—and fast. But, when you have to apply to multiple lenders and wait for decisions from each, the process might not move as fast as you expect, and you can potentially wait weeks or even months before the funds you need are in your hands, able to be used in your business.

National Business Capital is a way around the wait times and frustration that’s clouded the business financing process for years. Rather than apply to lenders one by one, you can receive multiple competitive offers from our 75+ lender marketplace with one digital application. Our expert Business Finance Advisors have experience working with almost every industry, too, so you can trust that we “get” your unique circumstances and won’t try to push you into a deal that doesn’t work for your specific needs. 

We’re just as invested in your success as you are. If you’re looking for one of the fastest processes in the industry, National Business Capital is the right partner in growth as you grow, expand, and win business in your community and industry. 

Complete our digital application to get started.

FAQs

How Does Inflation Affect Business Loans?

Inflation makes everything more expensive, and that includes borrowing money. The interest rate on most business loans correlates with the Federal Reserve’s “prime rate,” which is a standard interest rate that banks and SBA lenders will use to determine their interest rates on loans, lines of credit, and credit cards. As inflation increases, the Fed will increase its prime rate proportionally to limit the amount of money flowing into the economy. In other words, they raise the prime rate to deter businesses from borrowing money and decrease the active supply of money in circulation.

All of this combines to form a higher interest rate on most loan solutions. As of December 2022, the prime rate is 7.5%. Borrowing money today would be more expensive than it was in January 2022, when the prime rate was 3.25%. However, that doesn’t mean growth is impossible during periods of high prime rates. The cost of capital might stand as a deterrent, but if the plan you’re hoping to implement in your business will increase your revenue enough to offset the interest rate, then it’s likely a worthwhile investment, even during a time of high interest rates.

Don’t forgo your growth because of a short-term challenge. With the right mindset and a capital source behind you, you can reach your full potential in any economy.

How to Make Money During Inflation?

First, you should evaluate your pricing strategy and determine if you can make any changes to increase your revenue. Some businesses might not want to raise prices to avoid losing customers, but it’s a necessary step if you want to remain competitive. You can also evaluate your supplier relationships to find opportunities to save costs, lease equipment you don’t use regularly to other businesses, and opt out of any subscription services that aren’t 100% necessary to your business’s integrity. 

Most importantly, you have to have the right mindset. Changes happen, and you have to be able to react quickly to preserve your business’s financial health. If you’re struggling to find where to start, consider reaching out to other entrepreneurs through forums or social media websites.

Are All Businesses Affected by Inflation?

Consumer spending shifts dramatically during periods of high inflation. Any business that sells luxury goods or “wants” will see fewer customers than a business that provides necessities because consumers simply aren’t buying items they don’t absolutely need. This means that any business that sells products or provides services that aren’t necessary for consumers will likely feel the effects of inflation more intensely, causing them to alter their business model to stay profitable.

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Last Updated on December 28, 2022

National Business Capital helps entrepreneurs secure quick and fair financing to save time and cultivate sustainable growth.

Our stress-free online platform is designed for simplicity and speed, helping business owners go from application to approval in a matter of hours. And while we remain a leader in the Fintech industry, our clients agree it’s our personalized service and award-winning team that sets us apart.

From SBA loans to lines of credit, to equipment financing, and more, business owners can access all the different financing programs available to them in one place. Through our streamlined process, we have helped clients secure $2 billion in financing since 2007, and, more importantly, we’ve helped entrepreneurs save a tremendous amount of time and grow faster.

About the Author, Amanda D'Auria

Amanda is the Marketing Coordinator for National Business Capital. She’s a graduate of Ziklin School of Business at CUNY Baruch College and holds a B.A. in Advertising, Marketing, and Communications. Amanda has extensive experience creating content, directing outreach campaigns, and managing operations. She is passionate about small business and helping entrepreneurs reach new heights.

https://www.linkedin.com/in/amanda-dauria/


Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.