Factors That Would Require a Term Loan

Factors That Would Require a Term Loan
Factors That Would Require a Term Loan
September 12, 2016

If there is one thing that businesses are scared of, it is getting into debt or too much of it. However, there are times when debts are inevitable and they mostly come in the forms of loans. At some point in the life of every individual, loan may be required to settle some business or personal issues as the case may be.

Businesses benefit more from loans

Money does to businesses what blood does to the human body. For any business to stay alive, money needs to be in constant circulation. Timely infusion of funds in the form of loans will keep the daily operations running and that would translate to greater output which is the target of any business.

Read also: Merits and Demerits of Purchase Money and Non-purchase Money Loans in Short Sales

Successful businesses got to where they are by taking risks

Trying to avoid falling into debt as a business owner may be a smart one logically but not to your business because you would be chocking it to death. The United States presidential aspirant Donald J Trump got to his billionaire status by taking some form of calculated risks that involved loan money at some point in time.

Future expansion of any business is tied to loans

It has become like unvoiced principle that the funds that should go into expansion, purchase of equipment, hiring more skilled manpower, and some part of the running cost should be borrowed. The logic behind this is that using a borrowed money to expand will allow the capital to be channeled more output. If the business has a defined long term payment plan and income plan, loans will definitely be the perfect short term solution to financial crunch in business.

Read also: A Cash Business Loan might Just be Perfect for a Working Capital

Term loans have a short life span

Offering a term loan is usually quicker than the long term loan. Term loan is a loan product for businesses that need money to solve immediate problems in the home or in their businesses. Banks would willingly offer loan products to businesses and individuals if they study the following documents and are satisfied; their requirement, income, collateral, recovery plan, credit score and possibly tax records.

Up-scaling in business procedures would require term loan

No business would want to remain on the spot where they are for years. The target is often centered on increasing output and workforce. These expansions may involve bringing in new technology from abroad. When the aforementioned have been knocked into place, the revenue generation of the company should have increased and they can easily pay back the borrowed money without breaking a sweat.

Read also: What You Never Knew about the Small Business Administration Loans

Operating from a rented apartment increases running cost of a business

Rented apartments greatly add to the running cost of a business. Owning their own apartment or offices or premises is the dream of every business because it means they can reinvest the rest in something more productive that would further yield revenue to the company. The fund gap for such purchase can easily come from term loan.

Expansion of businesses comes with a cost

The expansion of any business is thrilling and often sounds like a dream come true but what follows behind is not palatable to the throat and the worst of them all is increase in bills which would put a strain to working capital. Term loan can ease the tension.

Trading in securities has their own shortfalls

Those who trade in the securities market can go out of cash which means they may not be able to purchase high value stocks and IPOs. To bridge that gap, they can easily take term loans.

Read also: Looking for Ways to Finance Your Company: Try Asset Based Lending

Article highlights

  • Term loan is a short term loan for solving immediate problems.
  • Businesses are always skeptic about borrowing.
  • Borrowing is wise if the business has an income plan.
  • Term loans can aid those trading in securities.
  • There is an unwritten law that expansion funds should be borrowed.
  • Term loans are quicker than the traditional loans.
  • Banks would require some documents to give out term loans.
  • Successful businesses have taken loans at one point or another.
  • Loans will free up capital to service running cost.
  • A loan invested in equipment that increases the revenue of the business would be easy to pay back.

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