There are several different paths available to you if your business needs money. You could look to reinvest the profits of the company. Or you could try to find an investor or business partner who will inject some cash into the enterprise. But what we’re going to look at today are business loans. These are common forms of financing for businesses. But before jumping in and applying for a business loan from a bank, you need to learn more about what’s good and bad about this kind of financing.
Below, you will find plenty of information about the advantages and disadvantages of taking out a business loan.
Banks Don’t Try to Influence How the Money is Spent
Unlike investors, a bank will never interfere with your business. If you find an investor, you will have to work alongside them. And unless they’re a silent partner, they will expect to have a say in how the business spends their money. On the other hand, banks don’t care what you do with the money as long as you can pay it back with added interest. What happens between now and then is entirely up to you. So, a business loan is usually the best option to retain complete control over your business and how it grows and expands.
They’re Convenient and Easy to Access
It’s easy to contact your bank and talk to them about possibly taking out a business loan. This convenience and ease of access can be suitable for businesses. Most business owners don’t have time to waste. And waiting for profits to grow to reinvest them can take a long time. The same applies to looking for investors. It’s a long process that can drag out for a long time. Of course, loan applications can take a long time to be analysed and accepted, but they are easier to deal with than most alternative options.
Reasonable Interest Rates
The interest rates attached to most business loans are excellent. Banks are competing for customers, so they are obligated to offer a deal that is at least in line with what their competitors offer. Of course, the interest rates will still allow enough room for the banks to see a healthy return on their profits. But the rate you get is often better than most personal loan options. On top of that, the interest you pay is often tax deductible. You will have to check with your local authority to see whether or not this is the case for your business, though.
The Profits Will be All Yours
Most business owners take out a business loan to expand their business or push it in a new direction. This means that they want to make it more profitable. If you get this money from an investor, they will expect a return on any money you make. The performance of the business will be directly linked to how much they get in return. That’s not the case when you take out a loan, though. The returns are fixed, meaning that you will pay the same amount back to the bank no matter how big or small your profits become as a result of your investment.
Not All Businesses Will Qualify for a Loan
Banks have many strict rules and conditions in place when it comes to approving or rejecting business loan applications. Not all businesses will meet the criteria laid out by the banks. So, you will need to know how the banks analyse applications before you go ahead with your application. You don’t want to waste time on an application if there is no chance of it being accepted by a particular bank. Dealing with rejection can be difficult to bounce back from too. You can wonder where you should turn next to get the money your business needs.
They’re Often Secured Against Assets
Many bank loans are secured against an asset owned by the business. The risk of this is that the lender can seize the asset if you fail to repay the loan you take out. Of course, you will probably think that this won’t become a problem for you. But that’s what everyone says when they take out a secured loan. It only becomes a problem when your business’s profits are not as healthy as you had hoped for, and you can no longer make those repayments on time. Think about this carefully before taking out a loan.
You Might Not be Granted All of the Money You Requested
Another thing banks do when responding to loan applications is only granted some of the money that’s requested. They might think a business doesn’t need all the money it is asking to lend. It’s not uncommon for banks to approve a loan on the condition that only 70% or 80% of the money is given. This can be frustrating for business owners who already have fully costed plans in place. It can force them back to the drawing board to cut costs and find ways to carry out their goals in a more affordable way. In truth, it’s a headache many business owners could do without.
In conclusion, you need to ensure that your business is always careful when borrowing money. Loans can be great solutions for companies that don’t want the hassle of finding an investor or business partner. However, ensuring that you will be able to repay the amount you borrow is essential because your assets could be taken from you as collateral if you fail to make the repayments.