Debt instruments are financial products that help businesses to raise capital. One of the most common types of debt instruments are business loans. They help businesses fund their operations, finance expansion plans, and acquire assets.
What are business loans?
Business loans are a type of debt instrument where a lender provides capital to a business. In return, the borrower agrees to repay the loan amount plus interest over a predetermined period. The interest rate and repayment terms of a business loan depend on various factors. These include the borrower's creditworthiness, loan amount, and the financial state of the business.
Advantages of business loans as debt instruments
Business loans have several advantages for businesses as debt instruments, including:
1. Access to capital:
Business loans provide businesses quick and easy access to capital to address their funding needs. With a business loan, you can finance the growth plans for your business, acquire assets, and manage cash flow.
2. Loan customisation:
Business loans can be customised based on the borrower’s unique needs such as loan tenure, repayment schedule, and loan amount. Customising the loan ensures that the business can maintain cash flow and meets its obligations without impacting its operations.
3. Improve credit score:
Taking out a business loan and repaying it on time can help businesses improve their credit score. A good credit score can help businesses access more favourable loan terms for future loans.
4. Retain control over business:
Unlike equity financing where businesses have to dilute their ownership, business loans provide businesses with complete control over their operations.
Conclusion
Business loans are a popular way for businesses to raise capital in the form of debt instruments. They provide businesses access to capital, loan customisation, the ability to improve credit score, tax benefits and control over operations. By using debt instruments like business loans wisely, businesses can manage their finances effectively and achieve their goals.
