One of the biggest challenges for most micro, small, and medium enterprises or MSMEs is cash flow management. Fortunately, business owners now have plenty of options when it comes to acquiring funding for a variety of purposes. The most viable course of action is usually to take out a small business loan.

Indeed, most businesses will eventually have to borrow money; in fact, if a business were doing well, it would be more likely that they’re going to need a cash injection of some sort. In many cases, borrowing cash is a perfectly normal part of running a company, as even multinational corporations with thousands of employees take on some amount of debt to further fuel their growth.

Of course, there’s no denying that borrowing money carries with it some risks. That being said, if you don’t avail yourself of such loan products, you may not be able to expand your business and achieve your goals. The key is to know the pros and cons of business loans so that you can make the right decisions.

The Pros of Business Loans

Most of the time, a business loan is considered “good debt.” After all, this is an investment that, if leveraged properly, will create more value or generate more income for you in the long run. For this reason alone, a business loan is a net positive. Here’s a more in-depth look at how a loan can benefit MSMEs:

Whether you like it or not, you need to spend money in order for your business to make even more money. Do you want to open a new branch? Do you need to hire more people? Are you planning to conduct market research? All of these need a good amount of funding.

The problem is, you may not always have enough to spend. Most of the time, your money might need to be allocated for more pressing expenses like employee salaries and overhead costs. Now, if your business is thriving, it’s a good idea to get a loan so that you can set things in motion and enjoy the benefits earlier. Waiting until you can fund everything yourself is, of course, not an entirely bad idea. However, this can delay the growth of your business, and in that time, your competitors could begin to outpace your growth.

One of the things that make business owners hesitant from getting business loans is the application process. Most lenders require a lot of documentation, not to mention take a bit of time to approve who to lend to. This is certainly not ideal, especially if the loan is for a cash emergency.

That said, not all lenders have such a long and complicated application and approval process. For example, with GrabFinance’s Quick Cash—a financial service designed to help Grab merchant-partners beef up their business operations—you can receive your funding in as fast as 7 days. Aside from having to upload a copy of one valid identification card, there’s no need for additional documentation, because you already have a record with Grab as a merchant-partner. Perhaps, most importantly, you can also be sure of 100% approval for your cash advance as long as you meet the eligibility requirements.

For ultimate convenience, Quick Cash also has an effortless payment scheme where you will get micro-deductions from your daily earnings. This way, you don’t have to worry too much about payment deadlines.

While most businesses avail themselves of a loan to jumpstart their expansion projects, you’re under no obligation to use it in the same way. If you need new equipment to make new products, for example, you can take out a business loan to make that possible. You can also apply for a business loan so that you can continue fulfilling business obligations, for example, by paying your suppliers.

In short, there are no restrictions as to how you spend your business loan. The only limitation in some cases is that you may not be able to purchase real estate; this isn’t because of actual restrictions, however, but rather because of the maximum loanable amount. Specifically, some financing options like cash advances from Grab Finance’s Quick Cash program let small- and medium-sized businesses (SMEs) borrow only between PHP 15,000 and PHP 300,000 for easier debt management.

A lot of business loans are also liability-free in the sense that they don’t require you to put up collateral. This way, you don’t have to worry about losing your assets as you endeavor to grow your business.

One way to inject more cash into your business, SME or otherwise, is to find investors. This is a great option because it’s interest-free and you don’t have to pay back your investor through monthly amortizations. However, to make up for the risk they’ve taken with your business, investors usually seek to earn a percentage of your profits in the form of dividends. They may also want a share of ownership of the business. Depending on your agreement, this arrangement can last indefinitely.

On the other hand, a business loan gives you full access to your profits. What’s even better is that once you’ve paid off the loan, you no longer have any obligations. Thus, if you need more money for your business but don’t want to dilute your equity, getting a loan is so much better than finding an investor.

When you borrow money through your business, you’re able to build a robust credit history provided that you’re able to pay your obligations on time. This is a good way of establishing a positive reputation among lenders so that you can borrow higher amounts and more frequently in the future.

There are other ways to borrow money for your enterprise aside from taking out business loans. For example, if you have a credit card, you can use it to make a purchase or get a cash advance. The problem with these options is that the interest rates can be quite high, which can end up with you having to spend more instead of benefiting from your purchase or loan.

With cash advance options like GrabFinance’s Quick Cash, interest rates can be as low as 1.75% per month. This means that you can focus more on growing your business rather than trying to make payments and avoiding penalties.

While almost any business can experience financial troubles, it’s the SMEs that usually encounter cash flow issues. A silver lining here is that, most of the time, your business finances getting a bit out of order can be an indication that you’re on the road to success. That’s because when you’re experiencing sudden growth, you’re going to need more materials, equipment, or manpower before you can meet the demand and generate bigger profits. Taking out a business loan can help address this financial hurdle.

The Cons of Business Loans​

As you may have noticed, a business loan can offer an SME plenty of advantages. That said, there are also certain downsides to borrowing cash that you must consider. Here are a few of them:

When you take out a business loan, you’re of course obligated to pay back the lender following the agreed-upon terms. If you aren’t able to fulfill this commitment, your credit reputation and score will take a big hit. This means you may not be able to take out another loan from the same lender or from other lenders, or you may not enjoy the same benefits as other businesses.

Obviously, you can avoid this situation only when you’re reasonably sure that you can pay back what you owe. You can also check out options like GrabFinance’s Quick Cash that provide convenient payment methods.

Any business venture involves a certain amount of risk; when you add loans to the mix, you can make things even riskier. To avoid getting into a cycle of debts and repayments, conduct a careful and honest assessment of your finances before taking out a business loan. Otherwise, you may end up permanently harming your business’s financial prospects.

This situation is only applicable if you applied for a secured loan. Many lenders ask borrowers to put up collateral for high-value loans, which is a form of security in case business owners default on their loans. Most of the time, businesses use their assets—like the company vehicle or some of their expensive equipment—as collateral. If you default on the loan, the lender will repossess these assets; this leads to further losses.

The best solution here is to find an unsecured loan so you’re free from this liability. This way, you don’t have to worry about losing your car or any other business asset if you can’t pay off the loan. That said, it’s still best to work toward paying off all of your loans so you don’t suffer any consequences.

As you can see, while there are indeed disadvantages to taking out a business loan, there are many more advantages that your business can enjoy. The key is to know when to take out one and whether or not you, as a business owner, have the financial maturity to manage a loan. Good luck and more power to your business!