PROS AND CONS OF ACQUIRING BANKS LOANS FOR SMALL BUSINESSES

Small businesses need money to start functioning. The small business owner or entrepreneur, who is about to start a new business venture, needs to figure out how and where the sufficient funds will come from.

The first option from which the money would be acquired is the entrepreneur’s own bank. Banks are always one of the first sources of financial aid for starting businesses. The moment the small business owner steps into those doors, the realities of finances present themselves. The business owner eventually learns about the difficulty of convincing a bank to finance the venture. With this, only a select few are able to fulfill a bank’s prerequisites. These people are the only ones who are successful in procuring the loan.

As years pass, banks have learned to appreciate the value of small businesses. That is why big banks have started to present special programs and services to attract small businesses and convince entrepreneurs to get a loan from them.

A bank loan is just one option that stands as a source of funds for the small business. Below are the pros and cons of getting a small business load from a bank:

PROS

  1. Accessible. As you know, banks are accessible because they are always used for withdrawals and deposits. It is a familiar and convenient place to get personalized financial services. It is only natural for business owners to think of it as an immediate source of a business loan.
  2. Low interest rates. Though it is challenging to get, banks tend to provide business loans that have lower interest rates than other lending institutions.
  3. Options for multiple loans. Every bank advertises different options to entice entrepreneurs who are running or starting a business of their own. A bank’s earnings come from the interest that they charge on the entrepreneur’s business loan. Other options are a standard business loan and a term loan.
  4. Tax benefits. A relief from taxes is given to the small business owners who receive the loan. This is because the profit percentage that is used for repayment has tax exemption.
  5. Traffic-less sharing. Venture capitalists and angel investors give small companies the loan that they need. This happens, provided the investors and capitalists gain partial ownership of the business.

CONS

  1. a)       Lengthy and slow application. All credentials about the small business are verified by the bank before the loan is sanctioned. It also takes a very long time to review them. Business owners see this as very taxing and unnecessary.
  2. b)      Running businesses have the upper hand. Unfortunately, banks choose the businesses that are already up and running. They want to see the credit history and the profitability of the business before approving the loan.
  3. c)       List of conditions. The small business owner should fulfill these conditions so that their loans can be cleared. Sometimes, entrepreneurs have difficulty meeting them.
  4. d)      Partial grant. Banks do not usually agree to give the entire amount requested by the business owner. They may just grant about 80% of it. This makes things difficult for the company owner because now, the entrepreneur must look for another agency to help complete the needed funds.
  5. e)      Losing collateral as a list. The collateral is usually the business owner’s own property and home. If the business fails, everything is given to the bank.

Though daunting, the balance between the pros and cons of bank loans convince business owners to try to apply for bank loans for their ventures. Perhaps you would like to give it a whirl.

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