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Can we take more loans for our business or not?

An entrepreneur requires funds for the following purposes:

a. Expansion

Entrepreneurs require funds for expanding their businesses. They need to decide how to arrange the funds and whether they should:

Take a loan, get investment through equity, or Use their own capital, etc

You can use the following details to decide whether you should take a loan for expansion:

  • Determine the returns you will get from the expansion:


  • If you will be getting high returns from the expansion, then you can take the loan. For expansion, if you need to do high investment in the beginning and you will get the returns after a period of time, then you should not take the loan.



  • Calculate the cost of a loan you are taking for the expansion:


  • If the cost of a loan, you are taking for expansion, is less than the returns you will be generating from the expansion, then you should take the loan.
    If the cost of a loan is more than the returns you will be generating from the expansion, then you should not take the loan.

    b. Working Capital

    Entrepreneurs also require loans for managing their working capital. This loan is also called a working capital loan.

    Details to Decide Whether to Take a Loan for Working Capital:

    While taking a loan for working capital, you need to check when you will be getting the funds back or generating returns from it.
    If you will be getting back the funds soon or you will get the returns on this working capital soon, then you should take the loan; otherwise, hold the decision of loan.

    c. Replacement of an Existing Loan

    Sometimes, entrepreneurs need to take a new loan for repaying or replacing their existing loans.

    Details to Decide Whether to Take a Loan for the Replacement of an Existing Loan:

    While taking the new loan for repaying or replacing your existing loan, you should ensure that the new loan is cheaper than the existing loan.


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