Why a Business Loan is Better than Liquidating Personal Savings or Assets

A number of external and internal factors can disrupt the finances of a small business. In many such cases, these financial disruptions require urgent capital infusion to keep the business competitive. While every small business owner would like to avoid such difficulties, sometimes getting financial help is the only answer.

Now, in Indian society, there is an inherent belief that taking any type of debt should be avoided. So, when we run into financial troubles, the first things we think of liquidating, are our personal savings and assets. The general wisdom is that those funds or assets can be reacquired, once the business returns to normal again.

Well, while it may be prudent to utilize funds from your savings to start a new business, doing so for an already established business doesn’t make sense. The reasoning behind this is quite simple. When you save before starting a new business, you are inadvertently putting some of the money aside for that purpose in your mind. However, when you accrue savings from an ongoing venture, you are putting that money aside for personal use. By utilizing those funds, you are cutting back on your and your family’s financial freedom.

One can argue that using savings to offset temporary financial difficulties without going into the hassles of getting a business loan or it allows you avoid losing money on interest repayments. At a cursory glance, these arguments may seem valid but there are many benefits of getting a business loan which are not always apparent.

Let’s have a look at some of the advantages of taking a business loan and analyze them in contrast to using personal savings for business use.

• When you utilize your savings for meeting urgent business needs such as working capital finance, you effectively use up the funds that were meant for personal pleasure or emergencies. Now, if a personal situation arises which involves spending money, you have to resort to borrowing, which you were trying to avoid in the first place. Personal loans from banks and private money lenders come with interest rates as high as 36% per annum whereas business loans are offered at relatively lower interest rates and have many add on benefits.
• It is easier to get business loans these days. Non-Banking Financial Companies like Lendingkart have revolutionized the Indian financial market for small and medium enterprises. Firms like Lendingkart are offering business loans at short-term small ticket finance to eligible SMEs in record turnaround time. A business can secure business loans of up to 1 crore within 3 days’ time.
• By taking a business loan, you keep your savings free for alternate investment. If you are a prudent investor, you can offset the business loan EMIs by earning interest on your savings. This is a much better way to utilize your savings instead of using them outright for financing your business.
• Taking a business loan also helps improve your business’s credit rating. A business loan connects your business to the financial grid, allowing credit rating agencies to assess your venture’s financial health and assign a rating. This credit score is one of the most important parameters used by financial institutions and investors when you are seeking funds for a future expansion of business. Repaying your business loan on time increases your credit score over time, establishing you as a reliable trading partner on the market. Once again, NBFCs like Lendingkart Finance have made it easier to secure business finance than traditional banking institutions which are often marred by bureaucratic delays and stringent requirements.
• Business loans also allow you to claim tax benefits as the interest paid on a loan is tax deductible. So, in essence, on one hand you are earning interest on savings and on the other you are saving through tax benefits, a win-win.
• Last but not least, a business loan gives you the flexibility borrow money again and again once you establish your credentials with a lender. For instance, Lendingkart gives you the facility to re-take a business loan upon complete repayment of an existing loan. This facility is especially beneficial for businesses seeking short-term working capital loans to streamline their finances.

Getting a business loan from NBFCs like Lendingkart

Also known as FinTech firms, non-banking financial companies like Lendingkart cater exclusively to small and medium businesses. Therefore, these financial companies are able to cater to the specific demands of a small business such as quick finance, flexible EMI options and competitive interest rates. Lendingkart is India’s leading non-banking financial company, having disbursed business loans in more than 600 cities.

Here are some of the salient features of Lendingkart business loans:

• Online application process using web login or the Lendingkart App
• Quick turnaround time of 3 days for approved loan accounts
• Minimal documentation requirements
• Loan amount based on current revenue/sales with an offer to increase the credit limit with the increase in revenue/sales.
• Short-term business loans range between 1 month and up to 2 years.
• One-time processing fee of 2% on the loan amount, waived upon renewal.
• No prepayment charges or penalties if you decide to repay the loan amount early.

In Conclusion

So, while the idea of using your personal savings to overcome financial difficulties may seem lucrative at first, the benefits of getting a business loan are simply too many and too good to ignore. As pointed out earlier in the article, using your personal savings for starting a new venture is a different thing altogether as you have already earmarked some of that money for business investment. It might even be essential as most public and private lenders will be unwilling to lend to a newly established business. However, once things are setup and running, business loans become a better option for financing your working capital needs and business expansions. They allow you to separate your professional and personal finances and ensure that you have ready money for both types of opportunities and emergencies.