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  • June 23, 2020
  • Leo

Loans act as a saviour for us all. They are the bridge between a person’s pocket and his goals.

Otherwise, it would come next to impossible for people to save up as much money as is needed to buy a home, a car, or even high-end gadgets.

The same is true for a business. Business establishments all over the world have some form of debt in their balance sheets, and I am not just talking about small-scale companies.

Whether small or large or multinational, Every Business would have debt, credit, or loans that it needs to repay.

For the broader spectrum of companies, the loans are bound to a larger scale.

The shares that a company issues are a form of loan that they raise through the public.

The bonds that a firm or even the government issue are another examples of a loan.

If we talk about the fixed deposits we have in the banks; technically, they are also loans. You give a lump sum to the bank on which the bank provides you an annual interest rate. Isn’t that a definition of a loan?

However, the point I want to make today isn’t related to the large scale business establishments, but the smaller-scale ones.

I want to highlight the reasons why businesses take loans and why loans benefit them every time.

Assists in Expansion

The fundamental benefit of loans in a business is that they help a business owner grow and make it business operations expand.

Every person on this planet does not want to stay stagnant all his life. The ambition to grow is the reason why we live.

A resident in a hospital aims to become the Chief of Surgery one day, and he has every right to.

Similarly, a business owner, who has one clothing store, may own a chain of multiple stores throughout England, and he has every right to.

A loan assists in doing just that.

The clothing store owner would need a substantial amount to set up a new outlet.

  • Renting a place where the store would be set up;
  • Procuring the clothes that would be on display;
  • Hiring staff that would look after the store;
  • Advertising about the new store and offering the enticements of discounts;

Each of these requires money, money that direct lenders in the UK will willingly provide to the promising business owner in the form of loans.

Helps to Deal with the Uncertainties

Another important aspect that loans cater to in the business world is its unpredictability.

If you find yourself in a difficult situation like your car being stolen, would money not provide you some relief?

If someone who doesn’t have the financial means, dealing with a difficult life situation becomes almost impossible for him.

I know money does not solve everything, but it allows you to worry about one less aspect.

Tell me if I am wrong, although I know I am not.

The same is true for the business world. Look at the current condition of businesses throughout the world. The pandemic has only brought losses and nothing else.

Without the means and access to even short-term business loans, the entrepreneur becomes almost helpless.

How can he save his business with no money? This is why loans are crucial in uncertainties.

Funds Day-to-Day Business Operations

A business has to fulfil several daily orders and to fulfil these orders. It requires money.

Many businesses, especially the manufacturing units, establish a line of credit for the same purpose.

Paying employee salaries;

Getting the raw material for production;

Paying for the maintenance and repairs of manufacturing machines;

These are some examples of the everyday expenses of businesses. A line of credit helps the business fulfil all of these with ease.

A LOC is a loan. A businessman applies for a certain amount of LOC, but he will not take the entire loan together, hence the use of the word line.

Through LOC, a businessperson can take only the amount that he needs at one point in time and pay interest on the same and not the entire loan.

For instance,

I have established a line of credit of £10,000 at a 12% interest. I got a big order for which I need about £2,000, so I will take out only that amount. Now I would pay interest on only the two grand that I have taken out, not the other £8,000.

This way, not only am I saving on interest payments, but I also have money lying with the bank that I can take out whenever I want.

Winding Up

In the end, all I want to say is that loans indeed are a blessing to each one of us. Without them, fulfilling our needs would never be a possibility.

For a business, loans are an even greater blessing. They help it in numerous and sometimes even halt a downward business spiral through their financial aid.

What do you think?

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