The one thing that is common for all businesses is the need for money and if you are a business owner, you will agree to the fact that there are several paths for you to choose from. However, each path is different and not all are ideal for you. It is possible to reinvest the profits in the business. You can also look for a partner who could inject some money in the enterprise but if you do not want to reduce your stake in the business and want complete control of it, a business loan is an ideal choice. But before you jump in and apply for a loan, it helps to understand the pros and cons of this form of financing.
Pros of a business loan
- You have the freedom to use the money
The biggest advantage of the loan is that the lender will not try to control how you use the funds. Unlike investors, the lender will not interfere in the business and how you run it. The lender will not care how and where you want to use the funds and they will not put a restriction on it either. This gives you complete freedom to use the money wherever you want to. You have complete control over the business and the funds.
2. Easy to access
Applying for a business loan is easy and convenient. You can simply speak to the lender and make an online application. Submit your documents and the loan will be processed in no time. The process of loan application and approval is quick and easy saving a lot of time and effort.
3. Low-interest rate
When it comes to business loans, you can enjoy low and competitive interest rates making the repayment easier. Lenders are looking for customers and they offer great deals. You must scout the market well and choose the right lender.
Cons of business loan
- You may not qualify for the loan
Lenders have strict lending criteria in place when it comes to approving the loan application. If your business is fairly new or running into losses, it may not be possible to be eligible for the loan. You must check the eligibility criteria of the lender before you prepare an application.
2. Requirement of a collateral
Certain lenders require you to provide collateral against the funds. It increases the risk and if you fail to make the repayment on time, the asset can be seized by the lender. If you do not own any asset, you may not be eligible for a secured loan.
3. Loan amount may be restricted
You may not be granted a loan for the amount you require. However, this is not a disadvantage as long as you are receiving funds. Your lender may think that the business does not require as much money as you are proposing and could extend a loan of about 60% of the amount you filed for.
You need to be careful when borrowing money. Do your homework and approach a lender that offers a business loan aligned with your business needs.