Are business loans really worth getting? That may seem like a silly question if your business is in need of capital, but some people have reservations about getting loans. You’re using debt to finance your business, and it has to be repaid to your creditor with interest.
Some business loans even require collateral in the form of your business assets or even personal assets to secure them, and if you fail to repay the loan, the creditor could seize them and liquidate them to pay off the amount owed. This is why it is important to read some business bank account reviews before choosing one so that you’ll know what you’re getting into.
There definitely is a risk that comes with getting a business loan, but it’s certainly worth it because it’s also a catalyst to business success if used right. This post from luminablog.co.uk will show you why you should get a loan to save your business.
You Can Purchase More Inventory with A Business Loan
If customers are buying your products in high volumes, you’ll want to be able to purchase enough inventory to meet their demand. Business loan financing can allow you to purchase very large quantities of inventory and stockpile it so it’s ready to go once customers order it. Of course, you should be careful not to over purchase it, but if sales are surging because of your products, that’s revenue made that can then pay off the loan and then some.
Eventually a business will start making enough money so that it will be able to both produce its own working capital and pay back the loan. Keep in mind that a working capital loan will probably have a higher interest rate because they are seen by some lenders as risky.
You’ll Build Your Credit
Getting a business loan and paying it off will improve your credit a lot and make you less risky for future financing.
A solid business credit profile is advantageous to start-ups because it builds credibility and the business’s ability to attract new creditors in the future. Business credit is credit that exists solely in the name of the business and is separate from the business owner’s personal credit. Borrowing money establishes business credit because the lender reports timely payments to credit bureaus that maintain a credit profile of the new business.
But on top of qualifying for more kinds of business loans, you’ll also qualify for much lower interest rates. The lower your interest rates, the more affordable your loan will be, and the lower your monthly payments will also be.
Repayment Options are flexible
Businesses usually have more flexibility than individuals in repaying loans. This is essential for start-ups, which have limited capital to repay borrowed funds. While most businesses repay loans monthly, new businesses may have the option to structure payments in a way where they are lower in the beginning when the business is less profitable. Once the business realizes a profit, payments gradually increase.
You Won’t Be Selling Equity in Your Business
Business loans are just simply money you’re borrowing, and not direct investments in your business. If you finance your business through equity, or in other words have investors buying into it, you’re essentially giving them pieces of the ownership in it. While that may not be a big deal for some entrepreneurs, others may not want other owners having a say in how the business will be run. With business loans, the lender doesn’t buy any equity in your business; they only want their money paid back.
Final Thoughts
At the end of the day, most business loans are worth it provided they don’t charge sky high interest rates. But you do need to make sure you spend the funds from business loans wisely and have a plan to exit them whether or not your business succeeds.