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Advantages and Disadvantages of Taking Small Business Loans

Advantages and Disadvantages of Taking Small Business Loans
All small businesses will require a certain amount of money to get launched, and secure equipment finance. A prospective business owner needs to determine if a small business loan is the proper way for them to obtain their needed funds. An entrepreneur must carefully weigh the advantages and disadvantages of obtaining a small business lender based loan.

Advantages Of A Small Business Loan:


Accessibility of a bank is a key advantage. Banks are located everywhere and allow instant access or depositing of funds through 24 hour ATM’s, personalized teller service and night deposit boxes.

Interest rates are significantly lower than using alternative methods for receiving needed funds. Small businesses who utilize credit cards will pay more interest and receive less money than a business who receives a bank loan.

Tax deductions are available from the IRS for a portion of the interest paid on a small business loan.

An array of loan options is available from lenders. Every lender offers numerous loan options to those starting or running a business. Banks recoup their money from interest payments made on the loan. Most entrepreneurs will be able to find a loan tailored to fit their unique needs.

Disadvantages Of A Small Business Loan:

Loan lenders require a verification of all assets and lengthy application before approving a loan. This process often takes an excessive amount of time, which may be difficult for a small business owner needing an immediate influx of cash.

Lenders have a lengthy list of prerequisites for loan qualification. Many small business owners are unable to qualify for a loan due to the massive amount of requirements. The ponderous amount of documentation needed to receive a loan results in a high frustration level for many small business owners.

Many lenders give preferential treatment to current customers making it difficult for new customers to obtain a loan. The reason lenders tend to be more favorable to current customers relates to payment history and perceived profitability of a small business loan.

Many small business owners are required to secure their loan with collateral. This collateral is typically the business owners home. If payments are not made or the new business falters, the loan holder risks losing their home and business.

Many lenders only approve a portion of the loan requested. This will necessitate the need for a small business owner to find the remaining funds elsewhere.

Every entrepreneur will need to carefully consider the preceding list of advantages and disadvantage of a small business loan. Just as each business is unique, so is every business owner and only they can decide if a loan is the right option for them.

Published by Valentine Belonwu

My name is Valentine, founder of this site, an entrepreneur working as a moderator at Bizsugar a small business community news site. Connect with me on Google+ at Valetine Belonwu

2 Comments

  1. Jen Bramhall · April 8, 2013

    Hi Valentine,

    I’m glad you have advised people to really make an informed decision whether or not a loan is right for their business. Sometimes other finance options such as equity debt are a better option. The type of loan is also important to the individual business.

    Jem

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