Loans and grants in business: the pros and cons.
Having access to loans and grants as a business owner or entrepreneur is one of the supportive systems that can help grow your business if properly used, but at the same time can liquidate your business if you are not strategic and skillful.
Every business to some extent requires support, especially when it's experiencing dwindling in the face of a harsh economic atmosphere. Some businesses would have been up and running if they had access to either grants and/or loans.
For the purpose of this article, a grant is a money or allowance given to an entrepreneur with the intention of not paying back. A loan on the other hand is a resource or money given to an entrepreneur with the sole purpose of paying back. A loan always comes with some conditions, you must fulfill those conditions before you are qualified for it and most time binding on the receiver.
A skillful and smart business person should be able to know when to get a loan for his business and when to get grants. However, a grant does not have a greater effect on a business, since you are not required to pay back, but one must be careful how he pushes a grant into his business to avoid mismanagement and redundancy.
A Loan is a critical aspect of every business, therefore an entrepreneur should be rightly guided on the use of a loan in business. There are cases in which a business enterprise was actually doing better and immediately a loan was introduced, the business crumpled and folded up. This is because the business owner did not take certain factors into consideration.
FACTORS TO BE CONSIDERED BEFORE INTRODUCING A LOAN INTO A BUSINESS ENTERPRISE.
First of all, getting a loan to start a business is a wrong idea. If care is not taken, the business might not survive when you begin to repay the loan. Instead of using a loan to start a business, get a loan to expand it. Some long-term loans have higher interest rates, and it will require a business that has to stand the test of time to be able to pay back the loans with the interest attached to them.
Secondly, one must consider the profit rate the business generates. This is very important to note when accessing a loan. It is wrong to get a loan for a business that does not generate good profit. Some entrepreneurs are fond of getting a loan whose interests are beyond the profit they generate from the business.
Moreover, an entrepreneur should get a loan not greater than the worth of his business. The loan must be lower than the entire worth of the business, in case of defaulting, some part of the business can be used to pay off the loan.
It is important to note that loans are not necessarily evil as some may see it, when proper factors are considered loans can be a stepping stone to greatness in businesses.
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