Accessing flexible sources of funds is an essential parameter for entrepreneurs and organisations. Small businesses have varied sources of finance that they can use for start-ups or expand their premises. Some of the common sources of finance that are open to small business investments include asset-based finance, private equity, bank loans, personal/group investments, and grants from government. For our organisation, loans from bank remain the best financing source. Bank loans will be the organisation’s financing source due to the following benefits that accompanies it: they have multiple options; they have lower interest rates; the lending institutions are accessible, thus increasing convenience; they attract no profit-sharing; and bank loans offer tax profits (Arslan & Umutlu 2009).
In awarding loans to the organisation, the bank will not claim any ownership spot in the group; they do not assign their personnel to monitor the operations of our organisation once they grant us the loan. In addition, bank loans will be beneficial to our group given that there will be no more obligation to the bank after the firm will have cleared the awarded loan. Apart from limited involvement with the bank, securing loans from a bank will not take part in the running of the organisation, as is common in other financial institutions like angel investors and venture capitalists.
The two institutions, for instance, agree to award loans only if they are inculcated in partial management of the organisation in which they can influence key decisions as well as share the profits of the organisation. Loans from banks do not have some obligations; the banks are only after recovering their loan and getting their interest (Mariotti & Glackin 2012). As compared to the conditions that accompany loans from other financial institutions, bank loans are preferably the best, as they have minimal obligations.
The exemption of profits used in repaying loans from tax makes loans from banks somehow inexpensive. Apart from the tax exemption benefits, fixed-rate loans attract constant loan servicing payments throughout the payment period (Arslan & Umutlu 2009). This implies that interest rates are fixed during the entire repayment period. From this elaborate advantage, the organisation will be able to plan and budget easily for monthly loan repayments.
Even though pundits argue that loans from banks are difficult to obtain, the loans provide lower interest rates than other financial institutions. Since the organisation is still a small entity, loans from other sources like credit cards will attract high interest, thus forcing the business to commit a huge percentage of its profits in loan repayment (Arslan & Umutlu 2009). Therefore, the loan will be a hindrance factor to the growth of the organisation, instead of propelling the business to greater heights.
Loans from banks also have multiple options to serve the varied needs of different clienteles. For the organisation, the varied options that bank loans present is advantageous since it will be able to go for a type of scheme that it can repay, and that which can enable it meet its objectives with ease. Unlike members’ contributions, loans from banks come in different types – from small amount to huge amounts (Mariotti & Glackin 2012). Securing such loans only lies on the net worth of an organisation or its financial history.
The cumbersome nature and the lengthy application process of loans from banks are necessary given that banks do not acquire partial share of the business or organisation that they award loans (Morgan 2007). The limited control of business operations, varied schemes, as well as fixed interest rates make loans from banks the best alternative source of finance for the organisation.
References
Arslan, O., & Umutlu, G 2009, ‘Trade Credits and Bank Loans for SMEs in the Textile Sector,’ Journal of Small Business & Entrepreneurship, vol. 22. no. 4, pp. 383-397. Web.
Mariotti, S., & Glackin, C 2012, Entrepreneurship & small business management, Pearson Prentice Hall, Upper Saddle River, N.J. Web.
Morgan, P 2007, Small business owner, Global Media, Chandni Chowk, Delhi. Web.