Why should you take a Business loan?

From daily operations to expansion a business is in need of money or capital in some way or the other. A business person or an entrepreneur wants his ideas to be put into action and in the field and for that he/she needs capital. For fulfilling his desire of running, growing, or expanding the business capital is required.

But why are we stressing so much about capital/money?

This is because Capital is one of the four factors of production and without them running a business is almost impossible.

Factors of Production

LAND

LABOUR

CAPITAL

ENTREPRENEURSHIP

Now, that we have seen why capital is necessary for business, now let us look at the advantages of raising capital through loans.

In general, there are two ways of raising capital one is through Equity financing and the other one is through Debt financing (Loan).

Equity Financing – Equity Financing involves offering investors a stake in the company in exchange for money/capital. Equity financing can be executed in a number of ways, including the sale of stock shares, the grant of stock options, or the sale of securities that can be converted into stock in the future. If the company succeeds, the capital providers can become shareholders and receive a portion of the earnings. In the event that the business fails, they also assume the risk of losing their investment.

Debt Financing - Debt financing is the borrowing of capital/funds from lenders who expect to get interest payments in the future along with their principal investment. Debt financing can be carried out via a variety of tools, including bank loans, bonds, and credit lines. Although they do not acquire ownership of the company, lenders do have a legal right to its assets in the event that it is unable to pay off its loan.

Now let us see why one should take a business loan and how does it help the business.

Business expansion

Working capital requirement

No sharing of profits

Low interest rates

Business acquisition

Cash flow management

Refinancing existing debt

Purchase inventory

Quick disbursal

Tax benefit for the loanee