It’s not a hidden fact that majority of small and middle-sized businesses and startups at best have to rely heavily on the financial support of some form. Such financial assistance comes from traditional business loans and a myriad of other alternatives like finding an Angel investor, venture capitalists, online lending, crowdfunding and so on. Fortunately, loans are now easier to avail and borrowers have multitudes of loan options available. With the advent of public and private firms joining the financial segments to offer loans, the interest rates have become competitive, reasonable and most importantly the loan amount and rates also are decided on the purpose of the loan. Here in this article, we will list out the top four things loans really do to small businesses.
#1 Provide legal and lawful borrowing options
Firstly it’s not a shocker that all the loan applications goes through a thorough scrutiny, checking credit scores and a compelling check to make sure the debt can be paid back. This inarguably is done to ensure that the borrower and lender are both entering in a hassle-free contract where nothing is hidden. Everything is legal and made clear to borrowers before they take a decision. Hence it’s always a safe bet to go with loans. Let’s say you decide to opt for other options, for example, P2P lenders (Peer to peer lenders) or non-traditional ones, you have to rely mostly on goodwill and faith and sometimes on the basis of good terms maintained over some past deals. There are less contractual obligations and bounds and this could prove to be a very risky affair for your business in future. You would not like your business to borrow money from a less reliable source. Secondly, the non-repayment of debt is another thing you must keep in mind. Loans have legal ways defined which are followed and they are often clear to the borrower as compared to other financial options which can be a rough experience.
#2 Scale up your business to a higher level
As a borrower from a small business, the toughest decision is to determine how much money should be borrowed. You can have a good business plan and you are certainly sure about the success of your business but the end of the day you have to devise a way to come out of the debt. Business loans are very helpful to small businesses which are economically weak. You will ask why? The answer lies in the repayment of-course. Also with repayment come interest rates into play. The more the interest rate the less willing small businesses will be to borrow more. With competitive and reasonable rates these days it becomes easy for small-sized economies to scale up their business. With low rates, you can courage up to take more loans. When you need more money and are dealing with an angel investor you will often find yourself at loss in future. Hence with loans and competitive offers by various banks, you are assured to scale business on your terms. Lack of capital should not make a reason for your decreased profits shares. Fewer interest rates these days with business loan assures that.
#3 Provides business ladder for easy vertical mobility
Small businesses may be doing well enough without loans but that never allows them to climb the business ladder. It’s one thing to perform good and whole different thing to expand your growth and become a middle sized economy from a smaller one and a huge corporate thing from a middle-sized business. How is this achievable? Top financial minds often go on acquiring comparatively smaller sized businesses and they have a vision and certainly enough resources to meet their wishes. For small sized businesses, the business loans are one of the easiest ways to operate bigger and expand more.
#4 Easy repayment options and tax savings
It is very important to understand that small business needs money mostly for growth and the amount borrowed is a large onetime expenditure. The term loans for example with repayment options varying from months to a year and variable interest rates make it easy for the borrower to choose his borrowing amount. It’s also worth mentioning that interest paid on loans exempts you from paying taxes and you can always take advantage of tax savings.
To conclude, business loans are very useful and particularly important to small vendors, startups or small business. Before going for any borrowing options its worthwhile researching terms and conditions to safeguard own interests in future.