It is always been a doubt in many minds on whether to make use of personal savings or a business loan for business requirements. This article will help you to understand why business loan is preferably advised than making use of personal loan. The term bootstrapping is making use of funds from pockets for business. Though it is one of the available options for fund in businesses, it is not a best move to start business from bootstrapping.
Here are reasons why you should pool in money through business loan instead of liquidating all your savings:
- While spending your money, earn returns on your savings:
It is advisable to make use of a business loan to invest into your business rather than pulling out all your savings. The main advantage of this is while you are spending you money and paying interest on one side, the other side you will be earning interest or returns for your savings. These saving can be made use in case of emergency situation both personally or business related.
- It isn’t a smart choice to risk everything you have at the initial stages:
Don’t exhaust all your savings at the initial stages. Being an entrepreneur is not as easy as you might think about it. It usually takes makes year to break even on your business and to start making profit. Initial stage of business is where most of the funding is required. This will include towards working capital, equipment, infrastructure set up, stock, materials, approval charges and licensing. For all these making use of savings will lead you to tough phase when there is additional need for money in the later stages of the business. Thus by taking a business loan you can retain all your savings and make returns on it until there is an actual need for using the same.
- Save money for hard times:
All business has its own share of risk. So while starting any business you should be prepared mentally and financially to do the necessary in times of hardship. Contingencies can happen anytime, these are never expected, and thus having savings kept aside for these contingencies will help you to run the show without affecting the business. There could be some natural calamities, accident in the business that could affect long term or to think of the worst, the business might fail. So never take chance with your personal savings, instead if you have taken a business loan there will be an option for you to get grace period for exemption of monthly payment until your business is stable.
- Don’t empty saving when there are alternatives available:
When there are easy options to get loans and other alternatives to invest into business, don’t make use and empty your savings. There are many lenders out there in the market who are keen to assist you with funding if you have a good rating and if the business plan is appealing. Always make sure that a business amount of your investment is through banks and fund lenders instead of your savings. Some of the options available for such loans are loan against property, secured business loans, equipment financing, unsecured loans, and loans against credit card receivables. This will help you to take huge amounts from banks and you can repay them slowly through small installments.
- Investment is not just about money:
While making use of your savings can only give you money required for funding your business, venture capitalists and other types of lenders can offer something more. Getting good contacts with professionals is always an added advantage for everyone. Having right contacts will open up a lot of business opportunities for you especially when you are new to this field.
Thus be lucky if you have an option to choose between liquidating savings versus business loans. But when it comes to decision making, make use of a business loan rather than exhausting all your savings. In case of any need for additional funding post considering other options, you can make use of savings but limit the usage as much as possible.
It is even a good option of considering – wherein 50% of your investment to business is through loans and similar sources and the rest half is through your personal savings. Apart from all these make a thorough research on your business types, success rate, market in which your business is going to function and so on. Last but not least, make use of your savings only if you are confident that you can take back all your savings from your business within 2 years.