Meeting the minimum qualification to apply a loan takes a lot of efforts. Using the loan is harder. The question of what to do with the loan to avoid misappropriation. Economists say that the more an organization or an individual has more disposable income, the more the organization or the individual tends to pay more tax and increase his expenditure. Disposable income refers to the amount of money that is available to a persona, and the same person is willing to use the money.
Purchase of equipment
An organization can use the amount of money borrowed to buy initial equipment to start a business or increase the amount of equipment held by the organization. The equipment of an organization indirectly influences the level of output in the organization. One can use a loan to install management information systems. These are systems that help the manager control, organize and supervise in the most effective ways. The systems help an organization maximize its output. One can also buy current assets to the company. Current assets increase the working capital of the organization. Organizations with more working capital are more productive than those with lower working capital. The best way to achieve a competitive advantage is to increase the organization’s equipment.
Meeting current expenditure
Current expenditures are expenses incurred on a regular basis. They are expenditures that the company has to meet on a day to day basis. A company can use the amount borrowed to meet expenditure. Such spending can increase the company’s liquidity. Liquidity is the ability of the business to turn current assets into cash and the ability of the organization to pay its creditors in time. When a company is faced with the challenge of not meeting payment deadline to creditors, a loan to crater for the expenditure is more advisable than a company running into defaults. This will improve the ability of a company continuing its operations as a going concern. Going concern is the ability of the company to continue its operation in the foreseeable future. It is the assertion that the company will continue operating and making a profit in future if the current prevailing conditions are kept constant.
Investing in long-term assets
A company can take up a loan and invest in long-term assets. They are assets that the company will recoup her investment in the future. They are classified as fixed assets in the book of accounts. Some assets, example land, are the ideal investment to invest in. They appreciate and increase in value. In the long run, the organization will have assets and add value. Expenses incurred in buying fixed assets are not taxed. The company will enjoy tax benefits. Investing in current assets is not advisable as the investment attract more tax liability to the organization. Other invests that the company can invest in include share and bonds.