Business Loan Advantages And Disadvantages – Should You Get Lending?

If you have just launched a new business or are planning to, a loan can be just the right tool to propel you in the right direction. A lot of the common hiccups and headaches can be avoided when you have a bit of extra capital to boost you from the start. Today we are going to elaborate on business loan advantages and disadvantages for entrepreneurs thinking about receiving lending.

Business Loan Advantages and Disadvantages

What is a Business Loan Anyways?

A business loan is exactly what you think it is, a loan from a bank or company that is for the purpose of growing a business. Businesses don’t come cheap these days and luckily there are many organizations out there that will help you out for getting your finances in order. Normally they will require to see previous balance sheets, your current business plan, and other information to understand your exact needs. If you been planning your business thoroughly or have already been running it, you will have all of this data at hand anyways.

Advantages

  1. Fast track your business: Imagine the difference even a few thousand dollars could make towards your business and its progress. Now multiply that by ten or more and you can be achieving years worth of effort in a fraction of the time. Many entrepreneurs try generating capital by running the business for long periods of time and then reinvesting those earnings. You should definitely be do that regardless but if you have capital from the start you are in a much better position.
  2. Convenient: Banks and companies that give out loans are easily accessible physically and online, meaning you always can be tracking your finances. They will also give you personalized assistance and help you every step of the way.
  3. Loan options: Loans can be issued in many different ways to optimize interest rates, payment terms, and many other details involved. The result is a process and loan that is tailored exactly to what you need.
  4. You keep the profit: When you go to angel investors and venture capitalists, they all ask for one thing and that is a share of the business. This means they will get control over the business direction and how it operates, resulting in less control and profits. Getting a traditional business loan negates this and leaves you with all of the profits from your hard work.
  5. Lower interest rates: Compared to other financial products and lines of credit, business loan can actually yield lower interest rates.
  6. Tax benefits: Businesses that take on loans can experience some tax relief since repaying the loan is usually exempted from tax.

Disadvantages

So while there are many positives to receiving a business loan, lets be realistic and look at some of the downsides:

  1. Application process: There is going to be a lot of information that banks and companies will require for you to get a loan. This can be a test of your book keeping skills and overall can be quite a lengthy process in certain cases. This makes sense though since they have to verify your business is applicable for a loan.
  2. Bias towards operating businesses: Business loans are much more likely to be given to businesses that are already launched and running. This helps prove profitability and gives banks access to records like your balance sheets for example. When you just have a business plan to show, it is less likely but still possible you will be given one.
  3. Collateral:┬áSome loans require you to offer up collateral in the case that you are unable to pay it back. In a situation like that you may end up losing valuable property but you should know beforehand what you’re getting into.

The Bottomline

There are several business loan advantages and disadvantages to consider before applying for one. If you believe that capital would help boost your business, increase profits, and make life easier for you then definitely consider getting one.

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