Why Taking A Business Loan Could Be The Better Route For Expanding Your Business?
There are various reasons why loans are crucial for businesses of all sizes, be it large, medium, or small. The primary objective of running a business is to generate more revenue through real profit gains, and the most effective way to achieve this is often by expanding the business.
This expansion is a key driver for taking up a business loan. To enhance business growth, optimize efficiency, and consequently increase profitability, substantial funds are required. Additional capital can be invested in advertising, expanding stock storage capacity, acquiring improved production equipment, or investing in advanced technology to boost productivity. Any or all of these measures can significantly enhance the business’s profitability.
Many entrepreneurs are under the impression that all debts are bad because of the interest payments involved. A common misconception is that it is better to expand using your own money rather than to borrow from a bank. This, however, is not entirely true. Using debt to fund your expansion can be less costly when seeking to grow your business as it potentially leads to better shareholder value or return on equity. Although there are risks involved in taking loans, the possibility of success leading to lucrative profit is ever present. The crucial aspect is to calculate and mitigate the risks involved. This will help to ensure that the increase in profit is considerably more than the total amount of interest accrued from the loan.
The main advantage of taking up a business loan in comparison to other sources of financing, such as venture capital or investors, is that you do not lose equity or control of your company. Having an investor on board will strengthen your business’s financial support to help with the cash flow of your company; however, an investor may hold different beliefs and priorities from yours. Although an investor is motivated to see your company grow into a successful one, ultimately, the end goal is a return on their investment. They may hold high expectations, and heap pressure on business owners by placing significant demands on the company’s progress.
With partial equity in your business, investors have the power to curb your decision-making process and steer the company in a different direction than what you have planned. Should the business take a wrong turn, relationships with your investors may likely become strained. This is especially worrisome if your investors are your own friends and family. When you forgo your independence to obtain financial support, you will ultimately need to take priorities of others into account. They may ultimately end up hurting, rather than helping, your business.
SMEs should consider applying for a business loan as a financial buffer against unexpected expenditure. Even if your business is cash-rich, having some back-up emergency funds is always advisable as a precautionary measure in the event of an unfortunate incident resulting in financial losses, which would require an injection of fresh funds to countermeasure the shortfall in cash flow.
For instance, a fire that results in damage and losses to inventory and property would likely necessitate extra funds to remedy the situation. Likewise, a firm could overestimate the budget required for a big project it has undertaken, which ends up compromising its cash flow due to bad or slow debt repayment. In such cases, a business loan can offer the working capital to maintain smooth day-to-day operations. In summary, a business loan can enable your business to consolidate itself after unexpected losses and continue growing towards long–term success.
Additionally, a loan offers funding for you to build trust and develop relationships in the financial sector, which can open up avenues for further business development down the road. When you repay your loans on time, you build trust with the your lenders by strengthening their confidence in you. As a result, more lucrative opportunities will be made available to you in the future. A stronger relationship with lenders will also empower you to borrow bigger loans as your business grows.
Want to know more about business loans or are you interested in applying for one?
FUNDREGO recognizes that every business has distinct financial requirements. We leverage our extensive experience and broad industry network to tailor solutions that address our customers’ needs.
Apply for business loan with us and let us help you on your financial journey today!