The financial needs of a business keep increasing as the company continues to grow. To keep the business flourishing, you may need to invest additional cash. It may be
- For buying new machinery and equipment
- Enhancing day-to-day operations
- For hiring staff
- Expanding the business
- Managing business cash flow
In such scenarios, business owners look for financial aid to keep the business running. They can opt for debt financing.
Let us first understand debt financing.
It is a finance or Business Loan taken by business owners with the aim to pay-off or reduce thier high-cost debts. It helps to save hundreds and thousands of Rupees in monthly payments. All the business debts are consolidated to one loan with the promise of returning the loan amount with interest.
Benefits of Debt Financing
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Tax deductions
Businesses have to pay taxes! However, tax benefits are available to business owners who choose debt financing. The business expenses include the principal loan amount and the interest payable. Thus, they can be shown as deductions from your business income when you file your taxes. Such tax deductions will help you save considerable amounts on the interest payable. In simpler terms, the difference between the annual interest paid and yearly tax savings is the actual interest you pay for debt financing. Therefore, it helps reduce the burden of repayment.
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Continue to enjoy ownership
Another reason you should choose debt financing over venture capitalists and angel investors is that they don’t interfere in your business operations. That is why debt financing is selected from over unsecured Business Loans to continue enjoying the freedom of ownership and making essential business decisions. You only have to pay the interest rate on the principal amount, and there is no interference in business decisions.
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Better financial planning
You can plan to apply for debt financing by calculating the EMI amount you need to pay with the help of a Business Loan EMI calculator. It also helps compare various financing options from lenders. It can help you make pre-handed financial planning of your business expenses. They make repayment more manageable and seamless.
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Benefits all business sizes
Irrespective of your business size and stage, debt financing can help you source working capital funds. They benefit more than angel investors, venture capitalists, and unsecured Business Loans. They are immediate and offer loans to businesses regardless of their capital and years in the field.
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Builds a better credit score
When you repay your debt on time, and responsibly, they help increase your business credit score. the benefits of business loan on your business in the future by enabling you to obtain more funds.
Conclusion
Funds are the blood flow of a successful business. When such funds fall short during a business life, a debt finance type of Business Loan can provide a good solution. You can source debt financing from external sources like banks or NBFCs to secure the working capital needs.
In addition, debt financing can offer you varied benefits like tax deductions, a better credit score, financial planning, and continued ownership of your business activities. All that you have to make sure of is the amount that is required and the reason why you need additional funds. Once you know these, you can borrow funds for better business operations.