Why A Loan Might Be The Preferred Path To Growing Your Business
There is a variety of reasons why loans are vital for businesses, whether large, medium, or small. The main purpose of running a business is to earn more money through real profit gain, and the best way to do that is normally by expanding the business. This is, of course, the main reason for taking up a business loan. To grow your business, and optimise efficiency and profitability, you’re going to need money. An injection of additional funds to a business can be invested for advertising, to increase stock storage capacity, or to purchase better production equipment or technology to increase productivity. This will certainly give the company’s business a boost.
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 is, however, 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 leaning to lucrative profit gains is ever present; but the risks involved must indeed be calculated and mitigated. This also means that the increase in profit can be considerably more than the total amount of interest of the loan that needs to be paid back over time.
Why would a loan be a better option than other sources of funding?
The main advantage of taking up a business loan in comparison to seeking other sources of financing like venture capital or investors is that you do not have to lose equity or control of your company. Having an investor strengthens the business’s financial support to help with the cash flow of your company; however, they 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 the investment. They may hold high expectations on the returns from your business, and heap pressure on the business owners as well as place significant demands on the company’s progress.
With partial equity in your business, they can curb the decision-making process and steer the company away from the direction you may have for your company. Relationships with friends and family who have invested in your company may be strained should the business take a wrong turn.
When you forgo your independence to obtain financial support, you will ultimately need to take the priorities of others into account. They can either bring a lot of help or challenges to your business’ success.
Have a safety net when a rainy day comes
SMEs should apply for a business loan as a financial buffer against unexpected expenditure. Even though a company is cash-rich, having some back-up money is always advisable should an unfortunate incident befall the company. A thriving business may suddenly experience a series of unfortunate events that would require an injection of fresh funds to countermeasure any cash shortfall caused by the losses.
For instance, a fire that results in damage and losses to inventory and property of a company might necessitate extra funds in order for the situation to be remedied. Or a firm could overestimate the budget required for a big project it has undertaken which compromises its cash flow due to bad or slow repayment of debts. For day-to-day operations, the working capital that is required can be derived from a business loan. This contributes to growing the business in the long term and helping it consolidate itself, besides providing a buffer as back-up financing.
Additionally, it is a good way to build trust and develop relationships in the financial sector and open up avenues for further development. When you build trust with the lender by strengthening its confidence in you by repaying the loan on time, more lucrative opportunities will be available to you in the future. It will also allow you to borrow bigger loans should you need it in the future as your business grows.
It is undeniable that for a company to grow, a fresh injection of funds is useful. Yes, there are many sources of funding you may consider to begin your business’s growth plan but, ultimately, if you want to maintain majority control of your business and make your own decisions in the way your company should grow, a loan would be the viable option for you. If you are looking for a bank loan for your business in Malaysia, try applying for the OCBC Business Term Loan, which requires no collateral required and is available for financing from RM50,000 up to RM600,000 and a tenure of up to five years. It comes with attractive interest rates of between 5.50% p.a.(EIR 10.01%) and 10.00% p.a. (EIR 17.27%). Enquire now at https://www.ocbc.com.my/BusinessTermLoan