Bank loans are intended to finance the purchase of equipment and inventory. Also, they can be used to get operating funds and capital if you’re planning to expand your business. Such loans are a trusted and time-constricted way of funding a small business. However, banks just fund companies that have long track records and substantial collateral most of the time. Moreover, their provided terms and condition are usually extremely strict. Because of that, business owners must assess and know the bank loan’s pros and cons against other ways to finance your business. To help you with that, we have listed both below:
Advantages of bank loans
Interest is tax-deductible
What’s great in business bank loans is that it has a tax-deductible. Aside from that, particularly with fixed-rate loans, wherein its loan servicing payments and interest rates don’t change throughout the life of the loan. Because of this, a business can easily plan and budget for their loan payment s every month. Regardless if you avail of an adjustable-rate loan or not, business owners can just utilize a spreadsheet to calculate payments in the future if ever the rates will change.
Bank loans are temporary
As soon as a business debtor paid off a loan, he/she won’t have any involvement with or obligation to the bank lender anymore except if the debtor wants to remove a subsequent loan. Match this with equity finance, where the firm might be paying out shareholder’s dividends for as long as the business survives in the industry.
Disadvantages of bank loans
Higher interest rates
For small business loans, the interests of banks could be pretty high. Also, the bank funding’s amount, which a business avails, usually isn’t enough to entirely cover its needs. For the business funding, the high-interest rate that it gets usually feats its expansion since the business requires to deal with extra funding and service the loan to meet funds that won’t be given by the bank. Those loans approved by the US Small Business Administration provide greater terms compared to other loans, however, the requirements are extremely strict. So, some will find a hard time qualifying and availing such as subsidized bank loans.
Not easy to qualify
It is actually very hard to qualify for bank loans unless a small brand has valuable collateral, like real estate, or it has a great track record. Banks are meticulous when it comes to choosing business they can lend finances with that is guaranteed to be able to repay their loans. Moreover, they ensure that the qualified business can cover losses if there’s an unexpected default. Business loaners can be asked to give personal proof—the personal assets of the borrower could be seized once the business cannot repay a part of the entire loan.
Now that you already know the pros and cons of availing bank loans, the decision will be on you whether you want to push through or not. If you want more tips about bank loans for your business funding, just contact DAC Capital Business Loans.