An adage indeed says, “You have to spend money to make money.” This statement relates to every business. When you are into a business, you need finances to develop it along with the maintenance of ongoing projects. It may be marketing, buying equipment, enhancing the infrastructure facilities, recruiting new staff members, or expanding the business; every single thing needs finances.
Does it seem feasible to manage all these finances from out of pocket expenses? Of course not, especially when you are the sole owner of the business. And here comes the necessity to get a business loan. This loan fulfills all the business expenses requirements for the owner. Here are some of the reasons why people take a business loan.
5 Reasons Behind Taking A Business Loan:
Some of the reasons behind taking a business loan are as follows:
1. For investment in assets:
Financial Institutions are likely to give business loans if your business is making considerable profits, and you want to expand your operations. The first necessity in the process of business expansion is real estate. Secondly, you need to renovate and restructure the existing business space. Think of the assets you may require; Machinery, inventories, software, computer devices, etc. Business loans can lease or buy specialized and customized machinery, which in turn adds to the productivity of your business. Moreover, business loans also assist in the purchase of new office premises or company vehicles.
2. For availing tax benefits:
Business loans in India are rendered with a variety of interest rates. The government categorizes this interest amount as an expense for loan funding with a purpose to develop and maintain the business. Therefore, the interest amount paid on loans can be claimed as a tax-deductible expense for the company. At the end of a business term, the interest is deducted from overall business profit while calculating the tax liability. And the best part of this is that there is no maximum limit set for tax-deductible expenses.
3. To restructure the debts:
Pay your debts on priority. Mortgages are a part of every business, but paying them on time is advisable to prevent financial problems in the long run. It may happen that you don’t have cash on hand to pay them. Moreover, it is tough to keep an eye on every debt. You may miss the track of your debts and end up taking more debts. Therefore, restructure them at the earliest with the assistance of business loans.
4. For launching new products and funding the marketing campaigns:
A considerable working capital goes into launching new products and marketing them. You step into a new market during this process. This demands a lot of research as well as execution. For example, you want to launch a new energy drink in the market. In this scenario, many competitors are selling the same products. In addition to this, you need to research on current consumers of energy drinks, the nutritional value of your drink, serving sizes, ingredients, rates, etc. Similar process goes behind any new product or service. This requires a substantial amount of working capital. And this is the reason behind taking a business loan.
5. To improve terms on a more substantial loan in the future:
Once you start taking small business loans and progress further in your business, the financial institution is willing to give you bigger loans. Furthermore, you can provide a business loan application for longer terms, i.e., 25-30 years. However, the first loan that an institution offers you has lower amounts and shorter duration. But as the credibility of your business increases, you can avail of business loans of higher amounts and longer terms. But before submitting the loan application must check the business loan eligibility for that.
A business is always susceptible to risk, and you never know when you will require more finances. And thus, it becomes essential to avail business loans and gain financial stability to make your business prosperous.