With the global financial crunch still wagging its massive tail in many parts of the world, it is essential to know the fundamental principles in monetary management, whether for business purposes or for personal reasons. Taking out a loan nowadays is an open and viable option for anyone who has the basic skills to utilize such funds for whatever reason it may be.
What if the purpose is to invest funds in a money-making venture? What are the risks involved? What steps must one take to ensure that one does not end up losing one’s pants?
Here are some general tips to consider when considering taking out a loan for a business venture:
1. Interest rates are at an all-time low; so, take out a loan now
Now is the best time to go get that capital for your business expansion or to start up a small business you have always wanted to put up. Considering that even government housing loans are only about 11%, down from the previous 16% level it was a year back, things point toward lower rates in other sectors. No question about the value of borrowing at much lower rates and today is the right time to do it.
2. Small loans are a-plenty; so, start at your level
Most microcredit facilities today allow individuals with no steady source of income, have no collateral to put up and no credit history to get small financing to alleviate poverty and for small business capital. Repayments schedules are not as stringent as commercial loans since a borrower individual can pay according to how much he or she can afford on a daily or weekly basis from the proceeds of the small business.
3. Borrowing to put up a savings account
People are often encouraged by banks and government officials to save up. However, in many countries, the percentage of people who have savings is very low as their income is generally used for prime needs such as food, shelter and transportation. After all those items are paid for, nothing is left and many even borrow to cover the deficit they inevitably experience, leading them to pile up their debt.
So, why not borrow in order to put up a savings account? If you can borrow at a low rate and put it in a bank even at a lower interest rate, that might end up being better than the loan shark’s rate or having to borrow constantly. With a buffer in your bank you can turn to for a couple of months or more, the stress and the inconvenience might end up being much less for the entire family or the individual.
4. Borrowing to augment a necessary expense
If one rents a home or plans to put up a new one, borrowing can take a big chunk off your regular monthly budget. Or if one plans to purchase an appliance, say a washing machine or a ref, and one does not have the cash to buy one, borrowing even a portion of the cost for a down-payment or to augment whatever savings one has, will answer the need. One does not need to borrow all the money needed for an expense. Saving part of the money then borrowing the rest will do the trick. The same thing goes with renovating a house or fixing a car or even expanding a small business.
Many people fear borrowing is tying one’s neck to someone or something that will end up having total control over one’s life and future. That is basically a mental trap that most people cannot avoid because of certain experiences they have had. But we can turn around that attitude into one where we will have more control over one’s finances and expenses. A sufficient amount of knowledge and monetary discipline will go a long way toward gaining good experience in financing and acquiring loan.