Here are four reasons why businesses borrow, even when they don't have to.
Leverage your track record
It is easier for a business to apply for a loan when it has a strong track record and maintain solid financials. Banks are more likely to approve the loan, when they are convinced that the business has the capability to make regular and prompt repayments. Waiting until you really need the funds before applying for a loan may not seem like a good idea, especially if an unexpected event demands more cash. Using your strong track record to borrow first, can be a prudent business decision.
Keep ahead of the curve
The good times may not always roll. Some businesses are more sensitive to the ups and downs of the economic cycle. And during times of economic weakness, banks and lenders may not be so willing to lend due to the higher risks involved. And rates may not be as competitive when the outlook is uncertain. If you borrow before the down cycle strikes, the extra liquidity will ensure you can ride out the storm and emerge stronger than before.
Charge up for the future economy
Here today and gone tomorrow. Consumer trends, new technology and business models are all evolving at breakneck speed. Bubble tea was popular, dwindled in interest and made a comeback. The smartphone you bought today could be obsolete in a matter of days, not to mention the business equipment and software you use. And for businesses looking to gear up for changes in the marketplace, having sufficient funds means you will be able to respond these developments in a nimble yet effective manner.
Take advantage of seasonal demand
Festivities such as Chinese New Year and the year-end holidays are a time when consumers throng the streets in search of a good deal. This is when businesses such as F&B and retail outlets see an uptick in sales. But not everyone captures these opportunities, because resources are stretched too thin. Tapping on a loan before the peak will help you seize the chance to end the year on a high.