Top 5 Advantages Of Debt Funding That Most Of The Entrepreneurs Don't Know
If you’re a small business owner, it’s quite likely you’ll eventually run into the need for some additional cash to purchase inventory, hire help, or buy that piece of equipment that will streamline your processes. In most cases, debt funding is the solution.
It Is Important To Know What You Understand About Debt Funding?
Simply put, debt funding is the technical term for borrowing money from an outside source with the promise to return the principal plus the agreed-upon percentage of interest. Most people think of a bank when they think of this type of borrowing, but there are actually many types of debt financing that are available to small business owners. These can include micro loans, business loans, credit cards, and peer-to-peer loans.
Image source:Entrepreneur
Of course, there are many debt financing pros and cons that need to be considered before taking any funds from an outside source. These need to be weighed carefully, and it’s always important to remember that what is good for one business owner may not be such a good idea for another.
Let’s take a closer look at these advantages.
1. Maintain Ownership of Your Business
You might be tempted to get an angel investor for your growing business. This is definitely a way to infuse cash into it.1 But, you’ll need to ask yourself if you want outside interference from investors? If you prefer to call the shots for your business, it makes sense to leverage debt financing – in other words, borrowing from a bank or other type of lender and paying it back in the agreed upon time frame. The bank may charge you interest on what you borrow, but they’re not going to get involved with how you run your day-to-day operations.
2. Tax Deductions
Surprising to some, taxes are often a key consideration when pondering whether or not to use debt financing for your business. Why? In many cases, the principal and the interest payments on business loans are classified as business expenses. These can be deducted from your business income taxes. In some ways, the government is your partner in your business with a percentage ownership stake (your tax rate).
3. Lower Interest Rates
This is a somewhat difficult advantage of debt financing to understand, but it can actually be quite valuable. Tax deductions can affect your overall tax rate. In many cases, there can be a tax advantage to taking on debt. For example, if your bank is charging you 10 percent interest on a business loan, and the government taxes you at a 30 % tax rate, you can tabulate the following take 10 % and multiply it by (1-30 percent), which equals 7 %. After your tax deductions, you will pay a 7 % interest rate instead of a 10 percent rate. It’s a win-win financial move that lets you both get the money you need to grow your business while also helping to slash your tax rate.
4. Simple obligations
Your obligation is to repay the money you borrow, according to the terms you agree to. It’s simple. Once you’ve paid back the loan, your business relationship with the lender ends. There are no on-going obligations beyond repayment to burden your business.
5.Easier planning
You know well in advance exactly how much principal and interest you will pay back each month. This makes it easier to budget and make financial plans.
Which Are The Sources Of Debt Funding?
Small businesses can obtain debt financing from a number of different sources. These sources can be broken down into two general categories, private and public sources it includes friends and relatives, banks, credit unions, consumer finance companies, commercial finance companies, trade credit, insurance companies, factor companies, and leasing companies. Public sources of debt financing include a number of loan programs provided by the state and federal governments to support small businesses.
image source:Stakeholder mapping
-
Private Sources
Many entrepreneurs begin their enterprises by borrowing money from friends and relatives. The main advantage of this type of arrangement is that friends and relatives are likely to provide more flexible terms of repayment than banks or other lenders.
In addition, these investors may be more willing to invest in an unproven business idea, based upon their personal knowledge and relationship with the entrepreneur, than other lenders. A related disadvantage, however, is that friends and relatives who loan money to help establish a small business may try to become involved in its management. Experts recommend that small business owners create a formal agreement with such investors to help avoid future misunderstandings.
-
Banks
These are the most common sources that most people immediately think of for debt financing. There are many different types of banks, although in general they exist to accept deposits and make loans. Most banks tend to be fairly risk averse and proceed cautiously when making loans. As a result, it may be difficult for a young business to obtain this sort of financing.
Commercial banks usually have more experience in making business loans than do regular savings banks. It may be helpful to review the differences among banks before choosing one as the target of a loan request. Credit unions are another common source of business loans. Since these financial institutions are intended to aid the members of a group—such as employees of a company or members of a labor union—they often provide funds more readily and under more favorable terms than banks. However, the amount of money that may be borrowed through a credit union is usually not as large.
-
Finance companies
These are another option for small business loans. Although they generally charge higher interest rates than banks and credit unions, they also are able to approve more requests for loans. Most loans obtained through finance companies are secured by a specific asset as collateral, and that asset can be seized if the entrepreneur defaults on the loan. Consumer finance companies make small loans against personal assets and provide an option for individuals with poor credit ratings.
Commercial finance companies provide small businesses with loans for inventory and equipment purchases and are a good resource for manufacturing enterprises. insurance companies often make commercial loans as a way of reinvesting their income. They usually provide payment terms and interest rates comparable to a commercial bank, but require a business to have more assets available as collateral.
Bottom Line
Entrepreneurs and owners of startup businesses often must resort to personal debt in order to fund their enterprises. Some entrepreneurs choose to arrange their initial investment in the business as a loan, with a specific repayment period and interest rate. The entrepreneur then uses the proceeds of the business to repay himself or herself over time. Other small business owners borrow the cash value of their personal life insurance policies to provide funds for their business. These funds are usually available at a relatively low interest rate. Still other entrepreneurs borrow money against the equity in their personal residences to cover business expenses.
Image source:Fleximize
Connect with Service Provider
Get connected within 24 hours to pre-screened, trustworthy and small business friendly service providers for Services in top Indian cities
HELLO GET OUT OF FINANCIAL MESS WITH THE HELP OF drbenjaminfinance@gmail.com
I have been in financial mess for the past months, I’m a single mum with kids to look after. My name is REBECCA MICHAELSON, and am from Ridley Park, Pennsylvania. A couple of weeks ago My friend visited me and along our discussion she told me about DR BENJAMIN OWEN FINANCE of drbenjaminfinance@gmail.com that he can help me out of my financial situation, I never believed cause I have spend so much money on different loan lenders who did nothing other than running away with my money. She advised, I gave it a try because she and some of her colleagues were rescued too by this Godsent lender with loans to revive their dying businesses and paying off bills. so I mailed him and explain all about my financial situation and therefore took me through the loan process which was very brief and easy. After that my loan application worth $278,000.00USD was granted, all i did was to follow the processing and be cooperative and today I am a proud business owner sharing the testimony of God-sent Lender. You can as well reach him through the Company WhatsApp +19292227023 Email drbenjaminfinance@gmail.com
THANK YOU VERY MUCH
Good day. I am a private loan lender that gives out both business and personal loans to individual at a low interest rate of 2% no matter your location. If you are interested Contact me (Whats App) number:+917310847059 sumitihomelend@gmail.com Mr. Sumiti
Hi everyone, it so nice to know that there are still real spell caster out there, just when i thought my chance of wining the lottery is gone then Dr Donald Showed up, i am a 67 years old woman and i spent 15 of my good years playing the lottery hoping i would win, i worked as a nurse but couldn’t save enough so i thought lottery wining could be another shortcut to successes, i invested all my time my money and i became broke, at a point i was devastated and almost gave up in life till i met a man called Dr Donald, i met him trough online and i was actually scared cause i have never done a thing like that before, but i decided to give it a try, i did all he asked of me still doubting his capability, after all he gave me a winning numbers to play which i did and to my greatest surprise i won, it was all like a dream to me but was real so i promise to share his good work so others can also reach out to him for help, trust me he is the best i advice you to try him and i promise you won’t be disappointed.
here is his Email below:
Email: drdonaldlotto@gmail.com
Whatsapp: +1(251)397-5966
BE SMART AND BECOME RICH IN LESS THAN 3DAYS….It all depends on how fast you can be to get the new PROGRAMMED blank ATM card that is capable of hacking into any ATM machine, anywhere in the world. I got to know about this BLANK ATM CARD when I was searching for a job online about a month ago. It has really changed my life for good and now I can say I’m rich and I can never be poor again. The least money I get in a day with it is about $50,000.(fifty thousand USD) Every now and then I keep pumping money into my account. Though it is illegal, there is no risk of being caught ,because it has been programmed in such a way that it is not traceable, it also has a technique that makes it impossible for the CCTVs to detect you.. For details on how to get yours today, email the hackers on Email: wizardcharlesgrouphackers@gmail.com or WhatsApp +447476467601. Tell your loved ones too, and start to live large. That’s the simple testimony of how my life changed for good…Love you all …the email address again is above.
BE SMART AND BECOME RICH IN LESS THAN 3DAYS….It all depends on how fast you can be to get the new PROGRAMMED blank ATM card that is capable of hacking into any ATM machine, anywhere in the world. I got to know about this BLANK ATM CARD when I was searching for a job online about a month ago. It has really changed my life for good and now I can say I’m rich and I can never be poor again. The least money I get in a day with it is about $50,000.(fifty thousand USD) Every now and then I keep pumping money into my account. Though it is illegal, there is no risk of being caught ,because it has been programmed in such a way that it is not traceable, it also has a technique that makes it impossible for the CCTVs to detect you.. For details on how to get yours today, email the hackers on Email: wizardcharlesgrouphackers@gmail.com or WhatsApp +447476467601. Tell your loved ones too, and start to live large. That’s the simple testimony of how my life changed for good…Love you all …the email address again is above.
I saw an opportunity to invest in cryptocurrency about two months ago and I took my chance. I contacted a broker who I saw videos on youtube and I invested a huge sum of money around £665,211 which was deposited using Bitcoin with hopes to gain massive returns on my investment. I kept tracking my portfolio and it was increasing daily on the website. It made me excited and confident. Fast forward to 30 Days after, which was supposed to be my payout date, I tried to make a withdrawal as I needed money to foot my bills and buy my new house, but the broker insisted that I continue to invest or will have to pay some fees to withdraw my funds. That was very disappointing to hear, because it was all going smoothly when I deposited the funds. Eventually, I paid the fees which was about £45,800. I was desperate now because according to my portfolio, I had made about £1,512,400. Now you see why I was willing to pay the fees. It turned out it was a scheme to keep asking me for more money for one thing or the other, like Taxes, miner fees and so many others. I declined, and instead I won’t pay more. They locked my account for several weeks. A month after, I saw a post on Quora about GHOST CHAMPION HACKERS which stated they were capable of getting my money recovered. With a little faith in me, I contacted them immediately, and discussed my situation, and sent all the information I had.
In less than a week, I was able to recoup my BTC. I praise the universe for sending them my way. I wish to recommend them to everyone out there. they are capable of recover any crypto coins Bitcoin, Usdt ,Eth, Dogecoin, now i have my funds back with there guidelines and skills you can always contact them via
EMAIL : ghostchampionwizard @ gmail.com
Telegram : https://t.me/WizardGhosthacker
“I recently enlisted one of personal chargeback recovery services and I must admit I was more than impressed. If you have been a victim of bitcoin or any cryptocurrency scam, I feel like it’s my duty to connect you all with a legit hacker like him. I started having a lot of issues with an investment company that goes by the name drip coin when I placed a withdrawal order for 297,000 USD I had with them. The so-called accountant disappeared, the support team did not respond to any of my emails and I thought it was over because I made the payments in crypto but I didn’t give up to have my funds back. Luckily for me with the help of WIZARD WITHNEY BLOCKCHAIRHACK SERVICE I was able to recover my funds. I salute him for his service and I write to others who might need his help in getting their funds back from such companies. His personal info is: Wizardwithneyblockchairhackser(@) gmail(.)com, that is a means you can reach them on.