A business loan is
a way of preserving your cash position, while expanding
your earning potential.
If you borrow money,
you keep your cash and use the borrowed money to buy more
plant or equipment, or people, to earn increased
revenue for the business.
So you have to have a very sober look
at your cashflow, and at the earning potential
of your intended reinvestment of the borrowed money.
If it all works, great. You can use the cash you've preserved
to buy more stock, do more business. Make more money.
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The pros and cons of business loans
Business loans are
structured in many different ways. However, ultimately,
they can be broken down into two vital aspects to their
make up. The first is the interest rate and the second is
the way the loan is repaid (otherwise known as the repayment
Cheap loans, low interest, on line
Interest rates tend to come in two
types - fixed and variable. A fixed rate loan sees the interest
on the loan remaining constant throughout the repayment
period. The interest rate is determined by the risk involved
in lending the money and the current rates in the market.
The variable rate sees the interest
that is applied on the principal outstanding fluctuating
with changes in the LIBOR or the Bank of England base rate.
This means your payments are variable as well. The current
market rate will be added to a predetermined premium which
is a constant throughout the loan.
The variable interest rate loan offers
the advantage over the fixed rate should the market rate
decrease, because you will end up paying less than you would
have on a fixed rate.
Conversely, the disadvantage is in
the fact that you have no protection from increases in the
market rate, which could take your monthly payments above
what they would be should you have a fixed rate loan.
Whichever, simply remember this. The
longer the loan period, the more it's costing. It's a simple,
business minded, approach