Advantages of Borrowing Money for Businesses
Debts have been given such a negative connotation with all the news about people losing their property and businesses shutting down. However, not every entrepreneur has a ready sum of cash sitting in their pockets. Businesses need capital to help start-up and keep operations running. What if it’s a necessity that you absolutely need, such as that broken printing machine, building materials or even basic renovations. Not all debts are bad.
It is normal to borrow money from money lending institutions including banks, credit unions, licensed moneylender and loans. Our role is to help you realise that you can gain leverage on the debt to keep your business afloat until profit comes in.
There are advantages to why borrowing money is better than savings or investments.
Debt is better than giving up equity.
Borrowing money to pay expenses is better than giving up equity to investors. Getting investors in on your business in exchange for equity is more expensive in the long term. With debt, you will have to pay for interest for a short term and once it is paid off, your equity is untouched.
Build credit for the future.
As a start-up, it is not too early to start building a solid business credit profile. Business credit is credit for business which is separate from the owner’s personal credit. Borrowing money under the business and paying on time will help the business attract new creditors in future. And, it will not scar your personal credit score.
Borrowing money minimises personal risk
You have a personal saving that you have been saving up for future expenses such as your kid’s education or retirement. It would be unwise to spend your savings on your business when there are other ways to borrow money. Since there are so many benefits of borrowing money, leave your savings for its original purpose.
If you borrow money with the RIGHT MOTIVE, you can actually earn or save money indirectly. Here’s an example scenario that will help you understand it better.
A contractor needs funds to purchase building materials for his current project. However, he does not have the ready sum presently. Banks will take too long to approve his loan application and he might not get it because there is no credit score history. He turns to the licensed moneylender and applies for the personal loan with a 13% interest rate. They approved his application within 5-7 days and received the amount quickly. Now, the contractor pays for materials and receives a 20% cash discount. He gets paid for the project and clears off his debt. And then, he ends up earning the 7% cashback after paying off the interest rate.
Of course, it is best if your business is not tied up with debt. Being savvy with the right purpose, it is not only a cheaper alternative but it can be a strategic tool to grow your business.
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