Taking Out A Loan To Finance A Business: Good Idea Or Bad?

Mihai Cristea 18/05/2020 | 13:20

Any form of business requires capital for start-up. Most start-up companies consider borrowing money for sustaining expenses needed for the business like purchasing for real estate, equipment, inventory, and increase your working capital. People in business would say that there may be reasons that are not valid to make you go into debt for your business. But there are still good reasons that prove to validate that borrowing money is still acceptable. If you think that your reasons are justifiable to have a loan, then you can take the step.

 

As a budding business owner, when you decide to take the leap and start your business, you should know how to calculate the amount of interest that you will need to pay for the period agreed upon when you apply for a loan. 

Here are some reasons why you should consider applying for a business loan:

Spending the Money is Not Controlled by the Bank

A bank will never interfere with your decisions on how you will run the business with borrowed capital compared with an investor, where both of you need to contribute to any decision that can affect the business. Also, banks will never care about how you will be using the money, as long as you keep paying the loan based on loan application terms and agreement. So if you are the kind of person who wants to take control of your own business, a loan can be a helpful option for you. 

Accessibility and Convenience

As a business owner, you do not want any of your time wasted. So when we talk about ease of access, a bank is readily approachable any time you need to talk to them and apply to borrow funds. Similarly, lending companies can easily be reached nowadays. For instance, if you are a business owner in Singapore and looking for a type of loan that you want for your business, there are many Money Lender Singapore based that loans to individuals and business owners. This would be an easier process unlike when you look for possible investors who would be interested to join and grow your business. Yes, it might take time for loan processing until its approval and release, but they are easier to handle compared to other alternative options. 

Interest Rates are Satisfactory

As compared to personal loans, business loans offer a good deal of interest because banks are also in competition with each other. They need to offer clients the best rates so they get more customers and have more profit from these business loans. At times, interests paid for are deductible from tax, but you need to verify this with your local government’s business licensing division because it will depend on the type of business that you have.

Full Ownership of the Revenue

Once you pay the bank for your loan, you are sure that the net income will be yours. You will be paying a fixed amount to the bank, and whatever the remaining amount will be part of your revenue. Unlike if you have an investor, the amount you pay can be accounted through the performance of your business, so if you have more income, your investor will likely demand a higher amount of return. If you want to expand your business, you can consider having a loan to be able to maximize the profits for yourself.

On the other hand, you can also consider the limitations of applying for a loan for your business:

Requirements for Application

Loan applications in banks follow certain rules and policies before approval. There is a risk that the requirements may not be met by the business. Before you apply for a loan, you can check out all the criteria needed by a bank for them to start processing a loan application. Not doing this, can waste much of your time and effort. If your application gets rejected, then you will be stressed with looking for alternatives to acquire for capital. 

Money Grant May Not be Given in Full

This is a frustrating part for business owners. Since you know that you have accounted for everything that you need for the business, you know that the amount you are borrowing will be enough to operate the business. But this is not the case sometimes, some banks can limit the amount because they think that you will not be needing the exact amount that you are requesting. If this is the case, then you will be prompted to take another alternative of having the amount that you are supposed to use for the business. 

Loans are Secured Against Assets

Most business owners think that this will never be a problem. This becomes a problem if the business fails to pay the bank. If the business is not making good money, then there will be no choice for you but surrender your assets. So you need to carefully decide on this so you won’t lose anything in your business. 

 

A loan can be a helpful solution to any business owner who does not want to take the risk of having an investor who will just share with the decisions and profits. So your financial forecast must help you decide to continue borrowing money, which you can pay diligently and still make your business earn the income that you wanted. 

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