If you are operating your business at small scale, it is quite likely that you will need for additional cash to purchase inventory, new equipment, hire staff as well as to meet the other business requirements that will help you to streamline the entire process. Funding is the perfect solution to this problem.
What is debt funding?
From the technical aspect, debt funding simply means borrowing money from unknown sources in return for a certain percentage of interest. The amount can be borrowed for a certain period of time, and you have to return the principal amount along with the interest percentage you agreed upon. When it comes to borrowing money from outside sources, then the first thing that comes to our mind is borrowing from a bank. But it is not the only debt financing source available for small-scale business owners. The other sources include business loans, microloans, credit cards and peer-to-peer loans.
There are lots of advantages that we need to consider while taking loans or funds from outside sources. As we have already discussed that there are several sources of borrowing funds. So, it is very essential to weigh down the available options and choose the best one which suits your business needs. Always remember, the debt option which proves to be good for one business may not prove to be a fruitful idea for another.
When it comes to wondering over the matter that whether debt financing should be used for the business or not, then taxes play a significant role in it. Now, the question is why? In several cases, the interest and principal payments on the loan amount taken for business are classified as the expenses. This can be directly slashed down from your business Income Tax account.
Maintain business ownership
Having an angel investor for the business is something which we all look forward to. This can obviously help you to get the inflow of cash without any difficulty. But the thing is that you have to decide yourself whether you would like to get outside interference from your investors. With the help of angel investors, you can get the amount without facing any kind of difficulty, but it will actually bring a lot of outside inference along with it. On the other hand, if you borrow from any bank or financial institution, then you can get relief from the burden and obligation simply after paying back the borrowed amount. They will not prefer to involve in your day-to-day business operations.
A lower rate of interest
This is a vast topic and cannot be clearly stated at one go. But this is another advantage you can expect with debt financing. No doubt, it is highly valuable. It is needless to say that tax deduction creates a significant impact on your entire tax rate. In most of the cases, tax advantages are provided on debts. For instance, if the bank is charging around 10% interest on the business loan and the government is taxing the same at 30% interest, then you can directly calculate it by considering 10% and multiplying the same by 1-30 percent. This is equal to 7 percent. So, after tax deductions are made, you will have to pay an interest rate of 7% instead of the 10% rate. Thus, it can be stated as a Win-Win financial status which enables you to get the required fund for growing your business as well as also slash down your tax rate. Get in touch with Liberty Lending to get debt funding for your business at a low-interest rate.
You need to obey the obligations of repaying back the money which you have borrowed from the lenders in accordance with the terms and agreements. And once the amount is paid back, your business relationship ends with the lender. There is no sort of ongoing obligations after you repair the loan amount and hence, you are free of burden.
Easy to plan
You have an idea in advance that how much capital and interest amount you have to repay back each month to the lender. This helps you in making your budget in a clear and precise manner.
The bottom line
Owners and entrepreneurs of startup companies need to resort to various types of personal loans in order to ensure that the business moves on a smooth track. Due to lack of capital investment, several entrepreneurs need to arrange the initial investment in the form of a loan. They agree to pay back the capital amount accompanied by a certain amount of interest on a specific date. The business owner then uses the business profits to repay the amount after the tenure is completed. Some small business entrepreneurs even borrow cash value of their personal insurance policies to fund their business. This type of fund is usually available at a low rate of interest. Some small-scale entrepreneurs even try to meet the business expenses by borrowing money against equity.