Life of a Business Owner

Why do you need loans?

Imagine that you are operating in a growing market. You can purchase the goods for one dollar, and sell them for two.

Scenario number 1. 

You use your dollar to buy the goods and sell them for 2. Then you purchase for 2 dollars and sell for 4. Buy for 4, sell for 8. And so on. Your business is growing. How much money is in your pocket? No money at all. Your balance is minus 1 dollar that you have spent at the very beginning.

Scenario number 2. 

Imagine that you can borrow the money at 10% interest rate.

You borrow 1 dollar, buy the goods, sell for 2 dollars, return 1.10 for the loan with interest, and have 90 cents in your pocket. Then you borrow dollars, sell for 4,

Return 2.20, and have 1.80 in the pocket. Then borrow 4 dollars, sell

at 8, return 4.40, 3.60 is in the pocket. 

Suddenly, you have a growing amount of money in your pocket. This is a concise answer to the question of why the business needs loans.

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