You may have the best business idea, and you might provide excellent products and impeccable customer service, but all of this would be of no use if you do not have enough money to run the show. Capital is what keeps a business running, and the more money you pump into a well-run company, the more profits it will be able to generate. On the other hand, if you do not have enough money to invest in infrastructure, machinery or logistics, or if you are unable to meet the recurring daily and weekly expenses on transportation, wages, and utilities, you will not be able to run the business properly, let alone generate more profits.
When does a business need funding?
The initial setup may require a substantial amount of money depending on the type and size of the business. It could be something as small as printing stationery, or as large as buying or leasing a new office. Then comes the cost of purchasing machinery if it is manufacturing business. Promotional expenses are also much higher in the initial phase of a company.
After the initial setup, you may not have any significant investments, but there will be regular expenses. You would need money for daily operations, paying the employees, bills and utilities and much more. These would be at a smaller scale but will keep occurring every week and every month.
How can you arrange funds?
Startups often get funding from venture capitalists, and this helps to tide over capital requirements for both starting off as well as taking care of working expenses on a regular basis. Some business owners dig into their savings or acquire soft loans from friends or relatives which they pay back when the business starts generating revenue on a regular basis. However, most entrepreneurs prefer to go for business loans from banks. These loans are usually secured against some form of collateral but are approved after the company has at least six months of successful existence.
What happens when you end up taking too many loans?
Experts caution that even though business loans are an excellent way to tide over capital requirements of a business, too many loans can begin to suffocate the revenue stream and not leave anything for business profits. Since loans are easily available these days, entrepreneurs make the mistake of taking multiple loans without thinking about how they are going to pay off all of them on time.
There are countless examples of small businesses that could not sustain after a few years of being in debt. Defaulting on repayment can cause a company’s debt to spiral out of control, and it may even bring its ultimate doom. That is why business owners should be prudent in taking loans to keep their financial power in their own hands.
To end the stress of dealing with multiple loans and several lenders, a business owner can think of debt consolidation. By consolidating all the smaller loans into a large one, the entrepreneur can simplify monthly payments and get back on the path of financial stability