It may seem that in today’s financial markets borrowing money for your new company is nearly impossible. To this end many new business owners are turning to less traditional resources such as borrowing from friends and family or seeking out venture capital through Angel investment firms etc. However there is still a very important use for business loans and as such I will attempt to outline for you the reasons why to get a business loan.
When making a comparison between venture capital and borrowing it is important to consider the criteria for each of these and the implications that they will have for your company. On the one hand if you seek out venture capital or partnership with those that have more financial resources then you, you have the advantage of not having to repay a loan with interest but you also have the disadvantage in that you will have to give up a certain amount of ownership in your company. It is not uncommon for new potential business owners who have a good idea but no financial resources available to them to have to give up more than 50% of their company. The implication of this is that you would lose controlling share and as such you would not have the final say on all future decisions. This can be very frustrating for many new owners and many ultimately decide that they are on happy with this arrangement. On the other hand business loans allow you to maintain all of the ownership in your company but have the clear disadvantage in that you must repay the loan plus interest. These loan payments must be paid immediately upon borrowing which means this will have a detrimental effect on the day-to-day operational cost of your company. Many new companies simply do not have the profit margins which allow them to make money while repaying loan payments. This extends the amount which must be borrowed which further exacerbates the problem.
So when answering the question why to get a business loan the answer is that you wish to maintain control over your company. This can be very psychologically pleasing but in some cases it is not a realistic goal. You should look over your business plan to determine if you are able to absorb the additional cost of loan payments plus interest. If you are not able to do so you have two choices. You can either seek out funding in other ways such as through venture capitalists, or you can change your plan in order to be able to afford the additional expense of borrowing funds to pay for your new venture. Which choice you make is largely a matter of preference and you should discuss these choices with your accountant before making either choice.
For more information, go to Why to get a business loan at http://www.unsecuredbizloan.com/business-loans/reasons-why