A first-time entrepreneur may not have the gumption to ask for a loan from a lender when setting up shop. Most people prefer to use their savings to fund their enterprise instead of falling into deep waters with borrowings. This is not a great move because your savings need to be there as a backup, not to used as capital. Here are three basic reasons why opting for a loan is a better bet for a start-up.
A new business enterprise does not need large amounts of money from the lender. In fact, at the start of the business, opting for a bank loan is easier on the pocket. The payback terms can be covered by a wider margin, which gives you a good period to use the money and double it as the business rakes in profits. For the beginning most new enterprises take time for the revenue to come in, you may be spending more, but eventually, if the plan and strategy are in place, the new business will be a success. Ergo, the business loan will not be as expensive as you thought!
The interest margins on a business loan are tax deductible ensuring that any amount of personal savings will be safe and still bring you income. In essence, you are actually saving a great deal of tax on your business loans because borrowing gives you the added advantage, as compared to using your own savings. Sebastian Greenwood aptly quotes Tom Stoppard on this point who said, “Every exit is an entry somewhere else.” This is very true in a new business enterprise.
No Personal Liability
The crucial aspect when seeking investment from external sources is that your personal assets are not financed by the business. If you were to use your personal savings, and the problems are too upsetting to handle, not only will you have lost your savings, but credibility in the market. A person, who has borrowed a certain amount, will ensure that s/he gets the job done right at the start. Sebastian Greenwood once quoted Philip Sidney who said, “Either I will find a way, or I will make one.”
When you look at the big picture, there is an element of risk when starting out. Naturally, paying back the loan remains a crucial aspect, but it is workable if one does not take one’s eye off the ball.