Credit is not as bad as

To take or not to take, that is the question. Since the time of William our Shakespeare, and to this day, the relevance of this issue has not diminished.

A person can live a long time on the money he waits for.
William Faulkner

With the support of LendPal.io

Lending is actively advertised, its usefulness is questioned and “anathematized.”

And this is not surprising. 

After all, a loan remains a relatively simple and quick way to replenish financial resources for both business and any person. In addition, such a replenishment is possible in a situation where the acquisition of necessary goods and services without a loan is practically impossible. And in the absence of the possibility of accumulating your own funds, a loan looks extremely attractive.

But

we all know - “You take someone else’s for a while, you give yours forever.” And we don’t just know, but we experienced it on our own skin, buying a car on credit or a home with a mortgage. And we don’t always understand why a business goes to the bank with its own funds.

For those who know the words “startup” and “venture fund” firsthand, there is no need to explain why other people’s money is needed.

Credit is the lifeblood of business.

And yes, a loan for a consumer and a loan for a business are slightly different stories.

However, not all entrepreneurs are ready lend to banks, use borrowed capital. The myth that credit, by definition, is a threat and leads to a debt trap is quite tenacious.    

The centuries-old practice of lending shows that with competent financial management, a loan will become an impetus for business development and will allow the implementation of seemingly impossible plans. 

After all, a loan received on time can play a key role in the development of a company, for example, in preparation for a unique order, its implementation and the start of work with a key partner. 

In addition, when reinvesting only the profit received, the timing of achieving results will always be inferior to the scenario of attracting borrowed funds. Time is money. This phrase is extremely relevant for business.

So does it make sense to take out a loan?

Yes, if the loan gives the business an advantage. But not just any advantage, but one that will then turn into additional profit. 

For example: a company, having received a loan, bought equipment and an advantage over competitors in production capacity.. But the demand for products will only partially load the new equipment, with no prospects for growth. Would such a loan be rational?

If new equipment reduces the cost of production and reduces the cost of goods in comparison with competitors, then a loan for such equipment will be quite justified.

And of course, the borrowing company must be able to service the loan without problems, in other words, loan payments cannot exceed operating profit. 

If the borrower earns faster than the lender with the help of a loan, it would seem an unwise decision not to attract such a loan.

In addition, when applying for a loan, a business needs to:

Take into account the loan term.

The loan period should not exceed the time period for receiving income. Receiving a profit in an amount that allows you to repay the debt may be delayed in time. Which is especially important for seasonal business.

Choose the right bank, credit institution or other method of obtaining borrowed funds.

Borrow no more than necessary.

Incorrectly calculated optimal loan amount significantly increases the risk of bankruptcy. 

But what about non-business loans: consumer, mortgage, car loan and others? Are they not worth taking?

Of course it is, but, I emphasize, with an eye to common sense and sober calculation.

Of course, you need to live within your means. But to live. There are issues that require immediate resolution, such as buying a home, for which it is possible to save for only years later. A loan should be taken only if you understand the possibility of repayment. A correct assessment of your capabilities will help with this. The same approach is necessary for less global purchases, such as a car. Consumer credit, given the trend of rising prices, can also be rational and justified.

Credit, as an economic relationship between people, dates back more than one thousand years. If it were, in its essence, useful for the lender-usurer and harmful for the borrower, it would hardly have existed from the times of Mesopotamia to the present day, developing and improving, acquiring new forms, using opportunities, solving current problems. The famous saying of Paracelsus about poison and medicine also applies to credit. Common sense, a sober mind and financial knowledge will help us.