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Something Borrowed

Small-business owners who have never borrowed money are usually proud of that fact, but sometimes not taking out a loan can hurt you.

"Borrowing money is necessary for most growing companies. That's the way small businesses break out and become larger," says Tom Kellogg, president of Hartford, Connecticut-based Business Lenders Inc. The company, which has offices in Connecticut, Massachusetts, New Jersey, New York and Rhode Island, is one of the Northeast's most active Small Business Administration lenders.

A loan can also help companies that have problems paying bills or need to pay off creditors and improve cash flow.

When should you think about seeking a loan? Business Lenders has identified nine instances when you should consider a loan. The top three:

1. You want working capital to add employees, increase long-term sales and generally help the business grow. "Companies can grow using internally generated capital, but it might be much slower growth, and they will be exposed to risk for an extended period," says Kellogg.

2. You want to increase your market share. To carve out a larger share of the market, you may need to offer more favorable terms to customers and take on new ones who are creditworthy but slow
payers.

3. You want to take advantage of early-payment discounts. Suppliers may offer discounts on invoices paid within 10 days instead of the standard 30.

Other reasons to consider a loan are to purchase new equipment, refinance existing debt, establish a relationship with a lender, buy a commercial building or hedge against a downturn in business.

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