One does not need a degree in finance to know about the turbulent state of the economy during recent times. In today’s ever-changing world, not to mention the current rates of unemployment and the continually unpredictable economy, establishing and maintaining a profitable business is a feat not many people can achieve. It is, therefore, an unspoken fact that most businesses will need external investment at one point or another either to regulate cash flow or to expand in time with competitors or simply to be able to stand on its feet. Now, there are various kinds of external investment opportunities available in the market, and we will tell you why getting a business loan is the best idea.
Retain full control
People looking into start-ups and small business ideas usually go to find business partners or investment partners to get the money that the budding business needs. Now, this arrangement turns problematic quicker than one thinks. With a partner, you always need to be on the same page in terms of all expenses, and in the case where the idea is one person’s, and the money is the other’s, conflicts arise in simple matters of expenditure. Similarly, if a lender is investing his personal revenue into your business, not only would they want timely repayments but also a percentage of the profit that the business makes. Both these entities will likely also tell you how to manage your finances and run things around in your company. A business loan does no such thing. Whether you get a loan from a bank or any non-banking financial company (NBFC), you still get to retain full control over the decisions around your business. Once the corporation has agreed to give you a loan, they won’t tell you how to spend the money, and in our eyes, complete autonomy is something any business person vouches for as a great blessing.
Convenience and ease of access
In the competitive world that we live in, banks understand that they need to provide easy access to said facilities if they want to remain at par with their adversaries. They will, therefore, provide not only trusted borrowers but also new potentially long-term customers, with variable plans of repayments, easily customizable to suit your growth plans. There are also various kinds of loans available to cater to the various kinds of start-ups of the evolving world. One such kind is a business line of credit. When you apply for a business line of credit, an established credit line is set up, with regards to your requirements that you can then use like you would a credit card.
This kind of business loan is ideal for smaller companies that perhaps need to maintain cash flow during certain times. For example, a souvenir store that makes most of its sales during the holiday season may need extra help paying off salaries and bills during the off-season times, and this is where a line of credit will be the ideal solution to the problem.
Improvement in business credit
Under then a start-up, the biggest reason for taking up a business loan is to further growth plans, be it expansion with branches, purchasing new equipment, or increasing manpower. All these expenditures, in turn, improve the cash flow to a business and help build up its credibility. Even though a business owner can wait for their profits to accumulate so that they can spend it to finance growth plans, this route requires patience and long-standing time. And don’t they say, “Time is money.” If a business waits while they gather profits before reinvesting the capital, it is likely that they will be left behind in the race with competitors. A business loan provides you money exactly when you need it so that your venture can keep up with the pace of the market.
Banking is perhaps the most competitive business of all. There are thousands of banks looking to acquire long term clients, and therefore, the interest rates offered today are at an all-time low. Although lenders do look for healthy payoffs in return to their loans, the growing competition in the field is forcing corporations to provide varying schemes of payment with unusually low interest rates, especially to established businesses that they know are capable of fully returning the loan, just to create a longer clientele. Also, business loans are typically offered at lower interest rates than personal loans because the latter does not require collateral guarantee and also leaves less time for in-depth background checks, making it far riskier for lenders to invest in.
The most prominent reason that a business owner takes up a loan is to ultimately increase its profits, whether it’s through expansion or asset management. If you were to get a loan from an investor, this person would want an equal percentage on the profit that your company would make on his money. Their reimbursement will be directly proportional to the money the business generates. This is not the deal with business loans. The compensation of a bank or NBFC is fixed. It’s the amount that they initially loaned you plus the interest decided at the time of the setup. A lender, therefore, has nothing to do with how much profit your company makes and how much of a bigger chunk of it you get to keep. Once you’ve paid off the fixed amount that the corporation loaned you, the extra profits are all yours to keep.
To generate ample annual revenue, maintain healthy cash flow, and earn sizeable profits is the ultimate dream of any business owner, no matter the size or age of his company. The right amount of funding is required for any venture to be able to make its ground and flourish in today’s unsteady economy, and it is, therefore, unavoidable to garner a little external investment when needed. Business loans are the anchors that keep a corporate ship adrift in times of raging storms or stagnant waters alike.