Impact of Business Loan on the Economy
A business loan is described as a form of funding advanced to a business and or a firm either by an individual, bank or even a government to be repaid with an interest after a specified period of time which should be predetermined at the time of loan signing agreement. When loan is being administered by either of the parties, several variables are considered which include the total amount of loan, the interest that the principal will attract, loan merit to qualify the recipient, due date for the loan as well as credit analysis of the recipient. Credit analysis involves the evaluation and examination of a business’s books of account, records and financial statements to determine and assess the credit worthiness of a business for purposes of loan qualification (Suite101.com, n pg).
Business loans are vital to a business for various reasons and purposes determined by the management of the business. Either, the business may be seeking to bridge a shortfall witnessed in the in the operating capital, in the event of a new technology or ideas, for expansion purposes as well as change of operating field. In the determination of interests payable to a loan, the considerations emphasized depends on the set levels and requirements of federal bank reserve, the creditworthiness of the receiving business or a firm, the activities for which the loan is intended, and finally the possible operating costs associated with loan servicing (Suite101.com, n pg).
The funding available for businesses in form of a loan in an economy is paramount in shaping the direction of the economic growth and development. Several factors in the economy likewise are dependent and influence the economic trends when the business loan is concerned. Many business waits until the economy starts to perform and creates a positive trading and investment opportunities (Suite101.com, n pg).
Business loans reverse the trends and occurrences of economic and business activities in the market. When an economy is in a recession, business loans assists the businesses and firms to increase their activity level to avoid depression situations while stimulating spending behaviors among the customers. The increased spending creates a chain of activities which consequently equips people with the purchasing power of the goods and services that are generated in the economy. This increased purchasing power in the economy in turn increases and creates effective demand in the economy therefore moving the economy from a recession towards a recovery path. Mostly this type of loans in such a scenario is provided by the government in form of a fiscal stimulus in the economy which acts as a loan for small businesses (Ray 34).
Businesses loans also provide employment opportunities when the implementation and utilization of these funds takes effect. When a firm has a substantial amount of money inform of a loan purposed to be invested in expansion programs, the manpower involved increases with the availability of funds. Therefore, more people will be employed in the economy solving the challenge of unemployment and increasing the number of working people in the economy. When people are equipped economically, they will experience a change of their real income which induces them to spend more stimulating effective demand and inducing companies to increase production to meet the corresponding demand. These activities through the accelerator investment chain boost the economic conditions enhancing growth and sustained developments. Therefore, business loan has enormous effect to the economic performance and trends in any country. When an economy avails credit and loan facilities especially for those sectors that are directly influencing day to day economic operations, by so doing, the economic trends are directly affected and the either react positively or negatively depending with the actions taken by the concerned authorities (Richard 24).