Why You Need to Get a Business Loan
When you plan on putting up a business, one major factor that can contribute to the success of your business is the fuel that will keep it moving and pushing the business despite of the challenges. The fuel that will help your business is funding. Funding is what will help you execute the plans you may have and achieve the objectives that you aim to meet at a certain timeline.
There are two ways of raising funds for your business. The first one is to coordinate and find investors who are willing to invest cash for a portion of your earnings and your business in return. This is one of the fastest and effective way of raising your funds for your business. The only concern that might be on your way is that your investors will eventually be your bosses. You will need to report to them the status of your projects, milestones, and earnings.
The second way of raising funds is to apply for a business loan. This will provide you propriety over your business but an obligation to repay the loan is at hand. But most often than not, getting a business loan is a good option and here are a few reasons why.
- Cost of debt over equity investment is usually lower.
When you apply for a business loan, the cost of debt is carried out at an interest rate of 15% to 18%. The equity investment on the other hand is often made at 25% per year. The profits being shared to your investors is often higher than the cost of debt being paid hence allowing more savings.
- Lender relationships is much easier to manage than investor relationships.
When you apply for a business loan, you only have to worry about paying your amortizations in a timely and consistent manner. As long as you are consistently accomplishing your obligations with the lender, it is unlikely that the licensed money lender will meddle with other affairs of your business. Unlike having an equity investment, your investors will expect you to bring the business to places hence they would ask for updates on projects, revenue, and other matters relatable to business operations.