How to use a crypto loan in business?
Especially for businesses, crypto loans have emerged as a popular option recently, as funding a business has always been seen as a challenging task. Businesses with crypto assets or those accepting cryptocurrency as payment can use those assets as collateral for a fiat currency loan and fund their projects.
Crypto backed loans are convenient
SMEs and small businesses usually need to get funds for several reasons: business expansion, employees payments, other general business activities. Traditional lender is not seen as a preferred option as they involve strict conditions (e.g. interest rate and fees), which have the potential to limit the business growth or defy the real purpose for which loan was taken in the first place.
There are two main reasons why crypto loans have come as a boon:
- Taking a crypto backed loan is easy and requires minimal paperwork. Many crypto loan lenders don’t even ask for the tax documents for loans under a certain amount, thus, making it extremely convenient for small businesses to access a capital.
- Tax burden is lower, especially for businesses with low Net Income (NI). Such loans lower the NI shown towards the tax returns, leading to potential favorable tax implications. Also, many crypto loan lenders don’t even charge a prepayment penalty
What type of loan to go for?
There are two types of crypto backed loan for business:
- The interest only loan, where only the interest is paid monthly and the principal amount in one lump sum at the end of the agreed term.
- The amortized loan, the installment paid regularly includes both interest and part principal
A borrower should go for the interest loan if they are unsure about their cash flows. Such a loan option is best suited for startups or for businesses that are not yet profitable.
For instance in the crypto start up, after the company is done with the ICO, a major requirement for the company will be to get funds for the operations. Until the company is cash flow positive, it can leverage the coins to raise an interest-only loan. The company can also re-finance the loan at the end of the agreed term, or even pre-pay the loan.
So, it is evident that there are quite a few use cases of the crypto loans for businesses. Crypto loans for businesses are already easily accessible along with offering borrowers favorable terms than the conventional loan system. And, going ahead, as crypto’s gain more popularity and stability; crypto loans would get even more useful.