Is it advisable for businesses to take a loan for hiring employees?


There can be various reasons where a business loan can be used. Businesses avail loans to maintain or increase their business. While businesses can grow organically by reinvesting their profits, it can take a considerable amount of time. In some cases, the process may be slow, and the amount of money may be limited. Availing business loans helps the business to grow at a faster pace.


If you want to shift to a new location and expand the business, funds will be required. This is not just for the real estate, raw materials, and machinery, but also the workforce- not just for hiring but also the costs involved in keeping them employed. However, is it wise to take a loan for this purpose? Let’s explore this:

Why use a business loan to hire employees?

Increasing the workforce automatically escalates the costs. But hiring the right employees can increase the business’s productivity, helping it to scale new heights. They may have the knowledge and expertise required to drive the expansion plans of a business. Engaging employees with diverse talent in various fields can be a part of the larger growth plan of the business.

If your present employees are overburdened with work, positive outcomes can be less than expected. Getting new staff can lessen their burden and optimize productivity and efficiency.

The risks attached with it

You may use your business loan to hire employees with high expectations. But there is a human angle involved, which means that risk is involved. Return is not as certain as, for instance, a loan to buy raw materials for an order received.

The fact that you will be able to retain the employee is also not a given. Neither is the fact that their profile and interview performance will translate into on-field results. Once you hire new employees, many expenses are to be covered, such as salaries, insurance, and pension funds. Using the business loan to hire employees can lead to one-time infrastructural costs as well. Apart from your business loan eligibility, the repayment capacity of your business also matters. Check a business loan EMI calculator to find out if your new employee productivity exceeds your EMI burden.

Summing up the assessment, hiring employees may not be an ideal reason for a business loan unless you are certain that it has a direct bearing on your business growth. Having said that, business loan interest rates are quite affordable when you choose the right lender. And who knows- a new employee could open up new growth possibilities in your business!