WHAT ARE THE IMPLICATIONS OF COLLECTING A LOAN FOR YOUR SMALL BUSINESS

January 21, 2019

HOW DANGEROUS IS COLLECTING A LOAN TO FINANCE A SMALL BUSINESS


Hello, welcome to another wonderful article we shall be discussing here and right now. It’s a pleasure to serve you and offer better information and serve as a guide to you if you are professional in your small business, we could always learn from each other no matter how small or little it is but remember “no knowledge is small” don’t mind me this is just a tip, I like flowing with my audience. Okay let’s roll out to today’s topic and smash some key points here.

Have you ever wondered why large business keeps growing despite some economic challenges, I can tell you “finance” is the bedrock of every fast moving business and more also ”good management system” will help make the finance more resourceful and small business sort out for the best option which is loan in order to keep the business alive. Yea, that’s the very great importance of collecting a loan. At its initial stage, it gives your business another level of continuity and strength because money has been utilized and so the business is expected to blossom but in appropriate utilizing of this resources can bring your business down and cause you to run into debt.

Okay let’s roll down to our subject matter but first we are going to be discussing briefly on some keywords in order for us to arrive at a better understanding of what the implications or dangers of collecting a loan can do to your business.

What is Loan? For sure we have heard about loan and what it actually means but let’s quickly emphasize on it for better understanding to our topic of discussion. Loan is the lending of money by one or more individuals, organizations or even entities to other individuals or organizations. In loan process there is a person called the recipient who receives the loan (the borrower) and liable to pay interest on that debt until every amount is repaid and not only the interest been fully paid but also the principal or initial amount borrowed. A loan can be of different types which include:

1 A secured loan: this type of loan expects the borrower to pledge its asset as collateral so that upon breach of contract or inability to pay the loan then the property is confiscated.

2 A mortgage loan: this type of loan is very common. Most individual opt-in order to purchase property (ies). The lender is usually a financial institution is given security-a lien on the title of the property until the mortgage is paid up in full and if the borrower defaults in paying the loan, the bank would have the legal right to reposes the house and sell it to recover sums owing t it.

3 Demand Loans: this are short term loans that typically do not have fixed dates for repayment but rather this type of loan carries a floating interest rate which varies according to the prime lending rate or other defined contract terms.

4 Unsecured loans: these are monetary loans that are not necessarily secures against the borrower assets. They may be available to individuals under many different packages like the personal loans, credit card debt, bank overdraft, corporate bonds, peer-to-peer lending or credit facilities and the interest applicable vary depending on the lender and the borrower.

FINANCE TO YOUR BUSINESS

Like we have rightly said, a business without finance is likely to fail, what then is finance?
Finance can be defined as that art of money management that is concerned with investing, borrowing and lending, savings, and forecasting.


Finance as it relates to business means the process of creating funds in order to run your small business or corporations for effective growth and development thereby yielding profit. Most businessmen and organizations source out different ways to get finance for the business which are highly beneficial and others which can actually kill your business. We shall be looking into some of the sources of finance to your business or organization and they are:

Long Term Sources
Medium Term Sources
Short Term Sources


In a simpler term, we can say the sources of finance for your business or organization/company included:

1 Personal savings: when starting up a business or in organization, your first investor is you and this could be from savings

2 Love Money: this is money you collect from your family, friends, parents or sponsor either as a loan or gift to help boost your business

3 Investors: These are people who are interested with your idea in generating your new business or existing one. These people(investors) love what you do and are willing to offer contribution/investment in the business with a share of profit at the short or long run.

4 Angels: these are generally wealthy men or retired company who seek for small firms owned by others in order to invest in. they contribute their ideas, expenses and familiarity within the business because they are expert in their field

5 Government grants and subsidies: government grants provide financing such as grants and subsidies that may be available to your small business


6 Bank Loans: these are most commonly used source of finance for small and medium sized business and most small business run into debt through this medium, bank loans are offered to business mostly with collateral and so they look for business or individuals with good sound track record. It is good to shop around and look for a bank that surely meets your needs without having to s much be in stress in order to afford your needs.

Now here comes our topic “how dangerous is collecting a loan to finance a business” or “the implications of collecting a loan for your business and we shall be taking number 6 (bank loan) source of finance as a case study.
Having discussed briefly about loan types, finance and sources now what are the dangers and implications of taking up for your business but don’t quote me wrong, there are excellent advantages of taking up a loan.

Dangers or implications of collecting a loan for your business




1 you could actually be paying interest on funds you are not ready to use or not using it to generate income, you find it hard to pay the loan with the interest and this will put pressure on you on how to pay back this loan thereby affecting you emotionally

2 where your customers owe you or do not pay in time in the case of monthly loan repayment you could be having troubles with cash flow.

3 You can be putting your home, car, property at risk. Definitely upon taking a loan, the financial institution will request for collateral where you fail to repay the loan with its interest at a fixed deadline, you may lose your property.

4 It is not advisable and dangerous as well to take up a loan when you have ongoing expenses as because it may lead to difficulty in proper loan utilization and repayment and you may end up not satisfying your small business or the financial institution of which the loan was collected

5 You shouldn’t collect more than you need, yea you heard me right, if you just need a small amount of money to figure out one or two little needs then collecting a loan will not be the best option because the higher your loan without proper planning and utilization the higher the risk of running into debt

6 The dangers of collecting a loan is paying an upfront fees to borrow money because that can actually led to bad debt

7 You might get punished for paying off your debt early and when it’s not yet time but swift payment keeps your mind at rest so learn to know their terms and conditions (financial institution)

8 Signing up for a variable rate when you shouldn’t have can be a big problem to you, so you should strategically look into the rate attached in paying the interest so that you necessarily don’t fall into what will be hard for you to repay

9 Confusing a payday loan for a personal loan

10 you should be able to determine how effective you could be in the loan repayment duration which could be monthly quarterly, or yearly and find the right duration that will be favorable to you

To really emphasize on this article, am not necessarily saying there is no benefit of collecting a loan, like I have said earlier there are also advantages but critically looking at the points mentioned you should know that this article is about the dangers of collecting a loan if no proper planning and utilization of this loan to serve as a great source of revenue to you and your small business to grow it will surely bounce back at you

So what do you have to say, drop your comments below or subscribe o our newsletter or better send us a message to seek better understanding and questions and we will respond to you shortly

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