The most important transition seen at present is increase in the number of entrepreneurs with plenty of exclusive ideas. This demands being self employed. Thus, being self employed entrepreneur is the latest emerging trend. Hence, being self employed, any capital that your venture owes is a business debt. Business debt can be of two types: priority debt and non-priority debt. Priority credit is easy to be collected than non-priority credit. Priority debt includes the amount associated with business rent arrears, business rates, income tax arrears, National Insurance arrears, VAT arrears, debts to major suppliers and accountant bills. On the contrary, non-priority debts include some bank or building society loans, overdrafts and credit cards, charge cards, catalogues, doorstep-collected loans, payday loans and non-essential business suppliers.
Why do business houses need loan?
You may have come across an amazing idea about a new setup and you might be highly confident. The investors need a guarantee and a confidence in your ideas that revenues will be generated at the right time. once you have analyzed the advantages and disadvantages of the idea from the financial point of view, going for a business loan is a good idea to start with. Business interest payments are tax deductible in comparison to payments made to equity investors. In other words, if your competitor and you are running evenly money-making business, a business that is self financed with debt is capable to generate higher profit when compared to the business utilizing equity investors. In short, taking a loan and being in Business Debt Collection at the initial stages would help your business in extra cost cutting and would help your venture to grow, expand and soar high in the market in future.
How to repay the loan?
The best and safest way to get a business loan is from the bank. Now, if you have taken the loan you need to pay it back as well. However, it is not that cumbersome to repay the loan as it may appear at the thought of a loan. Firstly, there should be a debt management plan, reduce costs, refinancing of the debts involving high payments followed by shortening terms of payment with the clients.
Disadvantages of taking business loans
The lender requires you to put something comparable as security. You may end up putting your valuable assets on security. Banks may require you to maintain a debt to equity ratio. If the debt exceeds equity beyond the permissible limit, you may be asked by the bank to repay the entire amount instantly.