Business capital or funding is usually the foundation for every business and every business owner or retailer has a hard time acquiring it. Some rely on their family and friends, venture capitalists, their savings, lenders or bank loans. It can be starting the business or injecting the funds into an already existing business. Either ways, the point is business owners require money for their businesses.
If your only option for funding is a bank loan, kindly walk through this article with me as we discuss the pros and cons of obtaining a bank loan. Hopefully after this you can make a decision on taking a bank loan or not.
Pros
Reasonable Interest Rate
Bank loans have fixed interest rates and are usually a bit lower compared to the interest rates of venture capitalists and other types of lenders. Banks are like retailers who compete for customers so in order to attract customers, they reduce their interest rates. This gives you the opportunity to research and find a bank whose rate is favorable to you.
Flexible Repayment Plans
Repayment of bank loans can be very easy so if you are interested in a kind of loan that has a flexible payment, consider bank loans. Banks often provide their customers with a fixed monthly payment over a period of time after they have received their loans. This helps you to make your repayment on time to prevent any mishaps.
Profits Are Yours
Conventionally, venture capitalist and other money lenders give out funds on the basis of shared profit, business shares, and even sharing of ideas. On the contrary , banks do not have so much interest in your business except the repayment of the loan and their stipulated interest. If your goal is to find funding that is not going to interfere with your plans and ideas for your business, a bank loan is what you seek.
Cons
Collateral or guarantor
Obtaining a loan from a bank is a great option, till the issue of collateral comes in. Banks require that you present an asset to be used as a collateral when applying for a loan. The asset must be of equivalence or higher than the amount you are applying for. Other banks also require that you present a guarantor who is their customer, a civil servant and receives his or her salary through their bank. These requirements can be the straw that will break your back and prevent you from acquiring the loan. On the other hand, if you fulfill the requirements and refuse to make repayments, your asset will be sold and used for the repayment or your guarantor’s salary will be withheld by the bank.
Strenuous Application Procedure
The procedure for applying for loans can be quite lengthy and distressing. Retailers would usually start the application and stop midway due to its nature. It requires a lot of paperwork and provision of requirements like cash flow history, bank statements, your credit history, asset documents, income tax returns, purpose of the loan, business history, experience and your personal details. It is very hard to meet all these requirements and even if you do, it will take months before you receive the loan and by that time, its urgency would have expired.
Reduction In Loan
The only time a bank interferes in loans is when they reduce the amount you asked for in your application after considering your business plan, history and cash flow statement. As an entrepreneur, it will be extremely frustrating especially if you have already made plans in relation to the amount you initially requested for in your application. In this case you would have to seek for other means to add up.
The decision is yours to make now. Remember that whether you decide to apply for a bank loan or decide on another alternative, any decision you take will have an effect on your business.
