Many people often assume that businesses borrow money because it’s struggling. However, nothing can be further from the truth. Most successful businesses often fund the operation and even expansion of their companies with a business loan. Funding your business is a smart idea and it will benefit your business in the long run.
While it’s true that there are several ways to finance your business, you’ll find that business loans can have a lot more rewards and benefits. Financing through a business loan instead of equity means that you don’t give up a stake in your company.
Which means potentially increasing your company’s future value. Paying off business loans can also help build your company’s credit. Which ultimately means better loan terms and interest rates in the future.
Here we outline the two main reasons why funding your business with a business loan is a smart idea:
1. Funding your business without selling shares of your company
Many entrepreneurs who are only starting tend to avoid borrowing money to jumpstart their companies. Some become so frugal with cash that they end up saving money for all the wrong reasons for their business. Investing money in marketing, equipment, and personnel are essential in any business.
People who are unable to get the money they need, often resort to selling a stake of their company for financing. There are many venture capitalists out there that may help fund your company, but they will often want a stake in your company.
In the long run, your potential profits are essentially decreased compared to owning 100 percent of the company.
Funding your business with business loans can provide your company with financing for all the essentials, such as equipment, marketing, inventory, and personnel.
You can cover the expenses for running a business and continue growing it without sacrificing shares of your company. This way, you’ll be in total and complete control of your business and all the profits will go to you.
2. Growing your business and its credit at the same time with a business loan
By getting small business loans and paying them off, you’re gradually increasing the credit score of your company. Higher credit scores mean faster loan approvals and also access to better loan deals. Think of a business loan as an investment for your company’s credit score.
If you plan on expanding your business, such as opening new branches, increasing your logistics, or improving equipment, it helps to build your company’s credit score in the beginning.
When the time comes that you need significantly large financing through business loans in the future, your company will have access to better loan terms and interest rates. As long as you pay off your business loans on time, your company’s credit score will also grow.
Key Questions You Should Ask Yourself Before Getting A Business Loan
A business loan is pretty important if you want your venture to get to the next level. However, keep in mind that getting it doesn’t guarantee success. You must understand how to make it work, and follow through with your plan. With this in mind, take a look at the questions you should ask yourself before taking out a business loan.
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