Are you in need of funds to start your business or expand your already existing business? Funds are required for starting a business or expansion of a business. For example, if you have a restaurant and are generating a good income from the restaurant. Now, for example, if you want to expand the seating space to accommodate more guests, you require funds for expansion. These funds can help you to add extra seating and manage the interiors of the space.
Thus, even well-functioning businesses require funds for expansion. Now, there are two ways you can get these funds:-
- Take a business loan
- Sell your personal savings or assets to raise funds
Taking a loan might sound too risky if you are from an Indian middle-class family. We are taught to stay away from debt and only use our own money to invest in our business. But a business loan is a good choice rather than liquidating your assets. Here are 4 reasons why business loans are better:-
- Improve your credit score – If you take a business loan, your credit scores increase. The banks get to know your credit profile when you repay your loan. Thus, future loans are easier to get. If you require more funds in the future, you can easily get loans from banks. Taking the example of the restaurant business explained earlier, suppose you want to convert your restaurant into a chain. You could get the expansion money from the banks if you took the business loan in the first place.
- Personal savings remain steady – Your personal savings are for your personal needs. You should not touch your personal savings, as these savings will be needed for your personal needs. Mixing business and personal needs is not a good idea, as your personal life will be affected by your business life. Continuing with the restaurant example, suppose your restaurant fails as a competitor beats your business after the expansion. In this case, you can simply write off your restaurant business and start another business claiming the business’s failure. Your personal savings will not be affected, and you can start afresh.
- Business loans are much cheaper than personal loans – Business loans are much cheaper than personal loans. Business loans are in the range of 9% to 15%. Whereas personal loans can go up to 36%, most personal loans start from 14%. Thus, business loans are much better if you need to apply for a loan. Also, business loans are now easy to get, and various banks, NBFCs, lending apps, etc., offer business loans for your business needs.
- Tax benefits – If you take a business loan, you can claim a tax deduction on the interest amount. Thus, your effective rate of interest for the loan is much lower. For personal loans, a tax deduction is not available. As the business loan is for business, you can claim the interest amount as an expense on the business. This will reduce your tax liability, and money saved is money earned. Continuing with the restaurant example, now suppose your restaurant earns good money, and you must pay your taxes. You can simply claim the interest amount as an expense and reduce your tax liability.
Conclusion A business loan is a good choice for you to start or expand your business. In India, we tend to avoid any form of a loan. If you are opting for a loan you cannot afford, you should avoid that loan. But if you need a loan for business expansion or for starting a business, you should consider a business loan. If you manage your business loan well, you can reduce your tax liability, improve your credit score and ensure that your personal savings are not affected simultaneously. Liquidating your savings is not a good idea when you can use a business loan for expansion. If you want to apply for a business loan, Ruloans is here to help you get the best loan options for your requirements. Our vision is to be recognized for value creation, transparency, and the largest distribution capabilities in the financial industry.