Are you having trouble with your business's financial situation? Are you afraid that your business might go bankrupt? Well, don't worry, as there are several options that you could go for if you want some business funding.
Of course, when we say business funding, the first thing that might come to your mind is business loans. For some people, business loans are a last resort. They tend to put you in a debt spiral, which is why it has a mixed reputation among business owners. However, you could only be in debt if you don't pay it on time. But that's hardly the point here.
If you use it wisely, business loans are a good option for your business if it's struggling with its finances. But before we give you the reasons why you should get a business loan, let's discuss what it is first.
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What is a Business Loan?
Business loans, just like any other type of loans like a payday loan, is a credit agreement between a business and a lender. The business would apply for a business loan, and the lender would assess if the business is eligible enough to be granted a business loan.
There are certain criteria and requirements before they approve your business loans. For example, your business should have good credit or be able to repay the loan in full in due course.
If you can't pay the loan back, you will be hit with penalties, and your business' credit will tank fast. Not only that, but it will also give your investors a bad image of you. It's pretty important that you first ensure you'd be able to pay the loan in time, or your business will have bad credit.
Thankfully, some lenders offer assistance to businesses with bad credit. There are guides that show how a loan can help people and businesses deal with their bad credit. But of course, you shouldn't go to that point in the first place. That said, why should you get a business loan in the first place? Here are some reasons why.
Expansion
If you're running a brick-and-mortar business in a specific location, expanding your business by creating branches in other places is a good way to increase your revenue and improve your business. Expanding can be costly, which is why you would need a lot of capital for that. Of course, you can go for more personal loans like a Payday loan, but luckily for you, a business is a better way to create funds.
Now, you'll be able to pay for things like constructing a new building, hiring new employees, and even buying new equipment. Just ensure that the new branch will improve your cash flow for the business.
Working Capital
Capital is not only needed to establish a business but also to run it. As we all know, running a business operation can be costly.
Even just a day can cost hundreds of dollars, depending on what kind of business you're running, but all business owners can agree that running daily operations can be expensive. You could go for flexible funding like a line of credit or a payday loan. However, with business loans, your working capital will be increased, so you can now comfortably retain our operations without worrying much about the cost.
One thing that business owners do is tap into their emergency funds just to operate daily. With business loans, you don't have to do that anymore since you'll have a comfortable buffer that you can depend on for the cost of your operations.
Replace and Upgrade Equipment
Is your business' equipment quite old, and you're planning to buy new ones but can't because of the price? You could go for a Payday loan to get it quickly. However, you could also do that with a business loan.
You can now replace your old equipment and upgrade them for better performance during your daily operations. Sure, leasing equipment is better when you want to save money, but in most cases, owning the equipment outright is still better.
Inventory
If you're running a product-based business, inventory is one of the first things you must consider when budgeting. It's a necessary expense; sometimes, it takes most of your budget. Usually, you can go out of your business’ pockets and fund a quick loan like a Payday loan to cover expenses.
However, having business loans is more optimal to ensure you're always updated with your inventory and that your customers will not have to worry about running out. This is especially true in busy seasons where there is always a threat of running out of products.
Tax Benefits
Long story short, the interest you'll be paying for your business loans is tax-deductible, so you should always check the tax eligibility of your loan before you apply for one. However, other loans, such as a Payday loan or a personal loan, are not tax-deductible even if you use them for your business.
Likewise, you should keep a record of the interest you're paying for the entire duration of your business loan. Not only is it a good habit, but you'll also have evidence in case you want to contest your tax refunds.
FAQs
- How does the repayment of the business loans happen?
All business loans repayments happen through an EQI, which happens through a customer's bank account. The customer needs to give a few post-dated checks and sign an ECS mandate in favor of the bank to allow it to disburse the loan.
- What happens if I miss an EMI payment or if an ECS bounce?
The bank would then levy certain ECS charges or penalties. In addition, you'll get hit in your credit report, and depending on the severity, it can seriously impact your credit score.
- What are the interest charges advantages when a loan is prepaid?
There will be no interest charge on the amount that is pre-closed. However, there will still be interest on the outstanding balance.
- Do you need to have perfect credit to apply for business loans?
No. Any credit is good enough to apply for a business loan. However, on less than stellar credit scores, you might have a higher interest rate, and it still depends on the lender if they approve your application.
Final Words
Business loans usually have a mixed reputation. However, its bad reputation comes from the fact that it has the potential that traps you in a debt spiral. Remember, however, that this only happens in extreme cases where you can't pay off the debt, which is why it's always important to assess first whether you can pay it off or not before applying for one.
