Business loans have been known to make or break the success of a company. Properly evaluating what a business loan can bring and what business loans can cause will help in planning the business decision to be made in applying for this type of loan. The business loan is a great way to bring funds to an existing company or a startup. It can help in expansion or its solvency. Below are the advantages and disadvantages of acquiring a business loan to properly plan and make the decision:
- Ownership – expanding or growing a company requires funds to purchase equipment, property, materials and even expand existing inventory. There are different ways of getting these funds and a business loan is the best way if the intention is to maintain the shares of its current owners. This is in contrast to seeking a funding from an equity investor, the current owners may have to give up the right to a portion of its current shares.
- Collateral – there are two types of business loans, secured and unsecured, which can be granted by a financial institution. Often, a business loan is granted without a collateral depending on the size and tenure of the business. Lenders consider granting a loan to long-tenured companies with good credit standing. Lenders are confident that non-payment of the loan will allow them to go after the business.
- Flexibility – Lending institutions grant flexibility on the types of the loan being granted to a business. Unlike other types of loan, a lender may consider the goal of the business and custom fit the terms of the loan to its borrower.
- Loan Repayment – like all types of loan, paying back the money that was borrowed is a must. A lender will always be able to get the money back in part or in full. If the business is forced out of bankruptcy, a lender will get paid first before owners can claim on remaining equity.
- Interest Rates – higher rates are applied against a business loan because of being unsecured. Like other unsecured loans, lenders try to avert the risk by charging a higher interest rate to ensure that they recover the amount borrowed as soon as possible.