You have just received a commercial contract for $200,000 with a 30% margin. The trouble is you do not have the equipment to complete the job. Purchasing the necessary equipment would cost you about $50,000, which is all you have in your account. If you took out a two-year loan on the equipment, and say the interest is $10,000, your profits would still be $ 60,000 - $10,000.
Prudent loan taking gives your company the means to expand more quickly than if you had relied solely on your cash flow. Taking a loan also does not mean a company is in trouble. On the contrary, it could mean your company is expanding. Most of us have a home loan or car loan. Taking up debt is not necessarily a bad thing and rushing to pay off your entire loan may not always be a prudent thing as it means reducing your cash flow. However, always remember to have proper budgeting done, to ensure your repayment each month is taken care of.
A consumer may also need to take up personal loans at times to capitalize on good opportunities or short term emergencies.