UPDATED: Feb 8, 2021

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Written By: Sara RouthierReviewed By: Joel OhmanUPDATED: Feb 8, 2021Fact Checked

Entrepreneurs are always looking for an edge to beat the competition.

Two decades ago, having a website was not a universal standard, and many companies often beat their rivals by being the first to have web presence. Nowadays, in our mobile and interconnected world, apps are the next “big thing” and may very well be the edge that could make one company more competitive than another.

However, apps don’t grow on trees and like any other type of software, they require competent programmers and engineers to create them. This can make apps cost anywhere in the range of several hundred dollars to tens of thousands of dollars in development costs, not to mention any and all marketing costs.

As one can imagine, not every business or entrepreneur has the kind of liquid money that can be used to pay for a skilled development team to create an Android or iOS app.

So should entrepreneurs borrow business loans in order to fund an app for their business? Is it even worthwhile for some industries to avoid making apps? Are apps just a passing trend, like Myspace profiles for musicians and businesses, and would company money or business loans be better spent elsewhere?

Several experts shared with loans.org whether it is wise to use financing to make an app for a business.

The Focus of Financing Apps

Maciej Fita, SEO Director of Brandignity, told loans.org that most established companies build apps in order to allow their customer base to be able to do everything they can on the phone or a desktop.

He used the Home Depot and Lowes mobile apps as examples by explaining that these apps are designed to have a full mobile experience just as if users were on their desktop site at home, but with the added convenience of being able to pull it up when you are in the store for additional help. While the consumer construction and home improvement industries have their apps already developed, not all industries are so interested in app development.

Fita pointed specifically to the financing industry and thinks that it is unlikely to be quick to adopt using apps for underwriting.

“Industries that have relied solely on paper or one way of doing things for a very long time are reluctant to sometimes introduce technology into their daily process,” he said. “I think there will be a certain amount of time required by the financial industry to adopt the use of a mobile app to process a loan that becomes a standard act in the industry. Security will always be a huge concern when processing people’s personal financial information.”

However, secure online forms do exist for individuals and entrepreneurs seeking financing, such as the loans.org applications page for commercial lending. Still though, underwriters can’t be blamed for being slow to adopt the relatively new and costly phone or tablet app model.

Just as the first cars were quite expensive, Fita attributes the high cost of app development to its slow adoption. Essentially, new technology or uses of technology tend to be costly to build.

“It is a relatively new coding discipline and we are quickly understanding how to pack consumer changing experiences into a very small piece of real estate, the smartphone screen,” said Fita. “Your vision has to be very precise to fit into the screen of a smartphone. The coding language is much younger than standard desktop HTML so there is a smaller pool of people that are executing the steps well.”

However, developers continue to refine and innovate as the app craze marches on. Fita doesn’t believe that this app craze will last long though since, in time, apps will become as commonplace and ubiquitous as websites. For the present moment though, he has noted that a colleague in a development company told him he rarely sees app proposals for less than $100,000 in development costs.

That’s hardly an inexpensive endeavor for most entrepreneurs and small businesses, but as with all things the future brings change.

“Mobile app development is definitely getting more affordable,” he said. “As the industry of coders grows, the prices will come down due to competition. You can definitely find coders that are affordable you just have to really look around. There are many talented app developers overseas that will code for a fraction of the cost from a US provider. The challenge is finding the right developer.”

Further driving up the present cost of development is how varied apps can be. Simple apps take less time to develop while more complex apps end up being more expensive to create. For entrepreneurs looking for business loans to fuel app develop, this means that some apps will be more costly to finance.

Even if expenses weren’t an issue, every industry may not need to be developing apps since that level of interaction with users could be superfluous.

“Sure there are industries that are less likely need an app to grow but I think that window is closing very quickly,” said Fita. “I don’t think it is as much as an industry thing as it is a case by case business examination. When social media first came around there were industries very slow to adopt the method of marketing. Industries like construction took a while. People always said ‘Oh plumbers are not hanging around on Facebook looking for business’.”

He countered such sentiment by explaining that within the mobile industry, even plumbers can make use of an app for their business. His example laid out how a plumber with 500 clients and 50 employees could use an app to stay in touch with clients. However, Fita did make sure to note that businesses with a low number of clients may find that an app does not have much of an impact.

“You have to really analyze your customer base to see if the spending makes sense,” he said.

An App Builder’s Advice

Jon Stroz, Vice President of Marketing for mobile application developer Accella, told loans.org that while virtually any forward-thinking large corporation can create an app, there are a number of reasons for virtually any business to enter the mobile and tablet app market.

“Whether it is to draw in new customers, to enhance the products and services that the corporation provides, or to give their own employees a new tool so they can improve their workplace efficiency, we see a wide range of corporations building mobile applications across multiple platforms,” he said.

In his experience, entrepreneurs tend to borrow between $10,000 and $20,000 dollars, sometimes from friends and family, in order to build mobile apps, whereas large corporations that are able to obtain business loans can afford to create six-figure apps.

While critics may decry using business loans or even usable funds within a company budget to create an app, Stroz thinks that it may well be worth the cost, provided the app is being created to solve a particular business problem and not simply for the sake of creation.

“We see apps progressing similarly to how websites were progressing in the mid to late nineties,” he said. “Many companies wanted a website back then, but weren’t sure exactly what they wanted it to do, so you wound up with many websites that had little thought, not much functionality, and hardly any ROI.  A company should think about the app they are creating and realize that is in fact a product that they are making, not just an app to throw on someone’s smartphone.”

Stroz advises entrepreneurs to use their funds to create apps that enhance a brand and improve customer relations, or make work easier for employees. Of course, entrepreneurs need to remember that the importance of building a mobile app has to be weighed against the importance of the needs of the company. For example, other products in a company’s pipeline may end up generating better cash flow than an app.

However, it still may be wise to get into tablet and mobile app development now, rather than later, since apps are here to stay if Stroz is correct.

“Just as the browser-based internet was not a ‘fad’ neither will mobile applications become a fad,” he said. “It is estimated that there are now three mobile devices for every individual on the planet.  This translates into a very sturdy market and long-term life for apps.”

Stroz has witnessed more and more companies recognizing this truth as app ideas come to his company from literally every industry and business vertical that exists. He is unable to see how a company or business could not benefit from a mobile app and he’s even seen apps used by church clergy, wildlife specialists, farmers, fishermen, plumbers, florists and even the Amish.

Look Before You App

Babak Hafezi, CEO of Hafezi Capital International Consulting, told loans.org that only companies that properly understand and use apps should bother focusing on app development.

“The reality is that App’s by themselves are worthless, unless they create an ease for the end user,” he said. “Many companies use Apps as an extension of their website, rather than understanding how clients interact with their users in the mobile realm. Development of an application should only be implemented when the company fully understands how and what the end user wants.”

Hafezi urges businesses to understand how feasible developing an app is from a financial standpoint. He suggests using a business loan if the most conservative ROI is higher than the price of developing the app.

Another option he pushed forward, would be for companies to offer up revenue sharing or stock within a company in exchange for an app if there just weren’t funds available to hire on a developer and pay him or her with cash. Costs aside, he maintains a grounded approach to viewing apps, despite the fanfare around the growing industry.

“Applications are just an extension of the software into the mobile realm, they are not the panacea to technological issues or business sales problems,” he said. “There are so many applications out there, most of which have yet to produce a ROI that makes them worth the investment.”

As costly as talented programmers within the US can be, he does not believe that borrowing a business loan to hire on a skilled app development team is the same as using a loan to fund employee expansion.

“Generally speaking corporations are very diligent when hiring new employees and don’t hire unless they truly have to,” he said. “However, that is not the case with application development. So many corporations believe that they have to be mobile when it is not justified. Applications are a functional tool to make the process of ordering, customer support, and access to data fast and applicable to the end user.”

He explained that most apps, such as iTunes, are really just access points to an enterprise product and that apps which allow customers to reach multiple data sets tend to be successful. With iTunes, customers are able to search for music and download it from anywhere in the world. Likewise, he noted that cab companies do the same with their apps to help provide convenience and rapid service to customers needing transportation.

He warned entrepreneurs to conduct a feasibility study before plunging headlong into app development since many of the apps he is aware of cost over $100,000 in development.

While entrepreneurs aren’t always afforded the luxury of “a full plate” of information, it is obvious to the world over that mobile markets are here to stay and that browser, tablet, and mobile apps will only be increasing in number as technology continues to move forward. Using a business loan to fund an app now, rather than later in a more crowded market, may be the wisest course of action for those entrepreneurs who understand both the risks and benefits an app offers. Those entrepreneurs who do not should likely steer clear.

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Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Written by Sara Routhier
Director of Outreach Sara Routhier

Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman