Acquiring debt for financing a healthy growing company isn’t the same as developing products by maxing out credit cards. In the first case, you have some income out of your current customers. This ensures a smooth functioning of the accounting dept. Debt turns into a more simplified financial obligation due to this infrastructure; you’re aware of your other financial obligations and you may plan for repaying your online installment loans in advance. Debt financing even has some other associated benefits.
Five ways on how you can make the most of debt financing:
1. Debt isn’t as expensive as equity
Entrepreneurs often consider venture capital as a free fund, although it’s not like that. You’ll surely find a cheaper option in acquiring debt if you have aims to scale and opt out. By opting for a loan worth $1 million with an APR of 20% you might need to shed $1.6M till you repay the borrowed amount. But if you owe the same amount to a venture capitalist at a value of $5 million, then you’ll end up paying a sum of $3 million to the VC while you’re being acquired for $15 million.
Although you won’t see any difference in the amount of capital, you’ll buy $1 million for $3 million from the VC while you buy $1 million from the lender for $1.6 million.
2. Debt enables you to enjoy tax benefits
Assuming a situation wherein your organization has grown out of the risks, there are still a few tax advantages that you can’t enjoy with equity financing. If a business resorts to accrual accounting, then the portion of interest achieved through payments moves through the profits and losses besides restricting the net income, which is taxable. The rate of interest mentioned here is actually more than the effective cost of borrowing.
3. Your business terms aren’t dictated by the lender
Accommodating more of equity investors indicate an extra reservation of seats on your board. It even places them in a dictating position as to how they perceive the growth of your organization. You’ll need to pay more attention and ensure that they exercise less control over your own initiatives. Lenders aren’t affected by your position for as long as the payments are met on time. They don’t acquire any board seats.
4. Debt proves accretive with your sticky income sources
The net cash flows of your company are likely to be increased by even a small debt when your company is thriving past the early stages of growth and generates revenue through recurring streams like those services based on subscriptions. You may hire a few more staff members out of your extra cash. By hiring a few good resources, you may end up developing effective sales programs and features besides expecting a good ROI. You may even expect an ROI worth a much higher amount that the cost of paying your staff members.
5. Find more time for taking your business decisions
It takes much lesser time for you to raise debt financing. You can utilize your time at other things only by acquiring a small amount of debt. You don’t need to update lenders about all board decisions. You don’t need to call them for board meetings. They won’t even need to focus on your business strategies or hiring decisions.
The online installment loans are a funding option that can help determine the future course of action for a businessman. You may consider this option and shape a successful future for your business today!