Borrowing money: the advantages and disadvantages
What you need to know
Borrowing money is something every business is likely do, but do you know the pros and cons?
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As a business owner with big ambitions, the idea of pursuing your own success and reaping the rewards is often very exciting. But, as well as passion and commitment, you also need access to enough capital in order to turn your dreams into a reality. However, this is often a major stumbling block for many developing businesses, with one of the biggest challenges being having to decide between borrowing money or using your own savings. Although both sides of the argument have their merits, it’s a topic that needs to be considered very carefully. So to help make a decision that benefits the whole of your business, here are the advantages and disadvantages of borrowing money.
Advantages of borrowing money
Whether you’re starting up or already established, growing and supporting your business will, no doubt, require a capital investment to achieve. Naturally, you may have to put up some of the funds during the initial stages, but supporting your business by yourself in the long-term may not be sustainable. You may even decide to ask friends and family with the aim of paying them back later but if you can’t, this will only lead to strained relationships and sleepless nights.
Instead, whether you’re looking to boost growth, maintain day-to-day operations, obtain new equipment, smooth and support uneven cashflow, establish a reliable supply chain or fund existing projects, exploring the advantages of borrowing money might be a wise decision. Borrowing money allows you to support aspects of your business which you may not be able to afford. Yet even if you do have the good fortune of possessing sufficient capital, parting with your savings could cause issues later in your business’ development and limit your ability to build a reputable credit rating. So, rather than purchasing goods and services upfront, exploring the advantages of borrowing money could enable you to spread out or delay the expense to a later date, making your goals more affordable in the long run.
Disadvantages of borrowing money
Although there are many advantages to borrowing money for your business, there are other aspects to factor in as well. Firstly, in spite of increased affordability, due to interest, service fees and legal costs, borrowing money will ultimately cost you more than if you were to support your goals by yourself. However, you may be able to reclaim interest on a quarterly basis, which is a topic that you should discuss with your accountant before placing an application.
In addition, although borrowing money can either spread out or delay the expense, you’ll need to keep up-to-date with the relevant repayment scheme (depending on your chosen product). This could limit any spare cashflow you have available, making it difficult to stay within your budget or provide funds to other areas of your business. Plus, if the agreement is secured, you’ll need to present security in the form of unencumbered assets (equipment, machinery, vehicles or property), which, in turn, puts them at risk of repossession should your business default. Plus, even if the agreement is unsecured, defaulting will affect your credit rating.
If you do decide to apply for business finance, sourcing a suitable agreement presents yet another challenge to overcome. Your first thought may be to explore what funding opportunities your bank has to offer, but with many UK financial institutions preferring big business, borrowing money through the traditional route could prove challenging, especially if you possess a limited trading history, adverse credit, an unproven business model or insufficient assets. Fortunately, the Alternative Finance Industry is opening the doors to more and more business finance solution than ever before, regardless of your current financial situation. However, with so many solutions to choose from, sourcing a suitable finance agreement becomes an obstacle in itself, which is where we can help.
Need help sourcing a suitable business finance agreement?
Although borrowing money for your business has many advantages, choosing a suitable finance arrangement isn’t a simple undertaking. Yet without having access to sufficient amounts of money at your disposal, achieving your goals will, ultimately, be an uphill struggle. However, the Alternative Finance industry is enabling businesses of all shapes and sizes to reach their full potential. The challenge is sourcing a suitable finance agreement with a lender you can trust, which is where speaking with a qualified business finance professional could prove invaluable.
At Rangewell, we’re an Access to Finance specialist who’s mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process. So if you’re looking to raise capital for your business, apply for an Alternative Business Finance agreement today or find out more with Rangewell.