A business establishment is the toughest job one could have. It comes with several hardships and consequences, but all this is in the short-run. The long-term benefits of establishing a business are countless. The first and most important thing that you might be worried about is the capital you require. You cannot rely on savings only because there are several minor issues to deal with in business. The majority of entrepreneurs think of getting a business loan. It sounds easy, but the business loan has its own merits and demerits. Everything comes with pros and cons, and business loans aren’t an exception.
Acquiring a business loan is easy for some business owners while one of the hardest jobs for many. Your day-to-day expenses sometimes need a short-term loan while there are equipment problems that need a big amount for solving. You can get all the major problems solved with a business loan, but before applying for a loan, you must research it. Here are some merits and demerits of business loans that you must know.
MERITS OF BUSINESS LOANS
Let’s not go on the bad side of business loans. Here are some of the most appealing merits that you can enjoy.
1. NO INTERFERENCE IN YOUR BUSINESS
Sharing authority is one of the most challenging choices to make in a business. For most business owners, shareholders are an easy way to fulfill the business’s money requirement. Unfortunately, shareholders become a part of the decision-making process. Business loans serve as an alternative to this problem. Not only an alternative but an alternative with diversity. You can choose from different types of loans such as unsecured and secured business loans depending upon your requirements.
2. TAX AND INTEREST BENEFITS
Tax is another trouble for business owners, and there are millions of myths associated with loans. Some people say that the tax increases due to business loans and some have the same description for the interest rate on business loans. Well, none of this is true. Moreover, you get tax benefits if you have chosen a bank for a business loan. Also, the interest rate that a bank offers is comparatively low.
3. NO DISTRIBUTION OF PROFITS
Why would you want to share your profits with many people called investors? When you approach shareholders for capital, they are not only part of the decision-making process, but the profits as well. Nobody would invest in your business without sharing profits. The percentage might vary, but you have to satisfy the investors. With a business loan, you can satisfy the financial statements and profits will be yours. There is no profit sharing in business loans.
4. BUSINESS BANK LOANS ARE TEMPORARY
This might sound weird to most of you, but this is true. Business loans from banks are temporary. Not every loan you acquire is temporary. Once a business loan is paid off, you do not have to worry about the debts. On the contrary, equity financing isn’t temporary every time. Also, note that the bank loans are temporary unless you have applied for a subsequent loan. Once paid off, you are free from any hassles.
5. BANKS –EASY ACCESS
Banks are always an easily accessible source for money. When it comes to acquiring business loans, they are the most credible source. If you are searching for business loans, it is better to consult a bank instead of other financial institutions. Others may not be the most appropriate choice because of the interest and tax rates. Banks, on the other hand, come with convenient business loan options. The access is easy, and the business loan options are more than other lending firms.
Demerits of Business loans
Other than the above-mentioned benefits or merits that you can enjoy, business loans have some demerits too. Take a look at the downsides too before you apply for a loan.
1. APPLYING IS A TOUGH JOB
The business loan application is complex than you can imagine. There are several legalities to keep in mind, and the documents required with the application are countless. First, you have to fill the toughest forms, and then, the documents never end. Applying is tough, and getting the loan application approved is a separate phase that you have to go through.
2. CLUMSY PROCESS FOR ENTREPRENEURS
Most of the entrepreneurs find the application process clumsy or cumbersome. Why? The application process is very tough, and the requirements are too time-consuming. Many business owners don’t find these requirements appropriate. You may be asked for some personal details or details that are irrelevant for a loan application.
3. RUNNING BUSINESSES SERVED FIRST
This is the most cunning situation when a startup has to suffer more than a stabilized business for getting a loan. This is a commonly found policy that running businesses are served first. For startups or small businesses, the process is more complex, and they are served after the running ones. This takes much time for small business owners to satisfy their money needs.
4. HIGHER CHANCES OF COLLATERAL DAMAGE
Secured business loans are offered after collateral. This collateral is mostly your personal property or any personal belonging that has high value. If you are unable to pay off the loan, there are high chances that you will lose the collateral.
5. YOU MAY NOT GET THE EXACT AMOUNT
Another demerit of business loans is that you don’t get the exact amount. The bank you have consulted or the financial institution you have turned to would only grant a specific percentage of the amount you have applied for.
Business loans are an easy way to satisfy your business’s financial needs. There are several merits of this loan. However, the demerits aren’t less, and you should know both sides of business loans. If you don’t have to share the profits with someone, you have to go through the complex process of business loan application first. Before applying for a business loan, make sure you have researched it.