Advantages and Disadvantages of a Business Loan

Deciding to put up a business is one of the boldest move one can make in a lifetime. Have you found yourself in a situation where you would want to hand over that resignation letter and go out that door with a big smile on your face telling yourself, “business idea, here I come!”.

This typically happens to employees who become fed up in the corporate world. The problem is that sometimes, even if we think that we are ready for putting up our own business, we find ourselves stuck because of not having enough cash to support the business we plan on putting up. The best way to address this is through a business loan.

A business loan is a loan granted by a bank or any financial institution where the proceeds received by the borrower will be used to support a business. If a business loan is your option, here are some advantages and disadvantages a business loan can bring.

Advantages:

  • Convenience – If you are looking for the fastest way to generate funds for putting up your business, then a business loan is the best way you can get it. Instead of looking for people to put in capital, getting a business loan can offer you the fastest way to generate the money you need.
  • Ownership Exclusivity – as mentioned, if you opt to get your funding from a business loan rather than getting people to put in capital for your business idea, then you have exclusivity over ownership of the business. Unlike having someone put in capital, unless the capital is fully returned to the investor, they will always have the right to decide over the business. Of course, a part of their money is invested.

Disadvantages:

  • Strict and Lengthy Application Process – As with every business, there is a big risk that it won’t work. Banks and Financial Institutions are aware of these hence a stringent application process is in place. Banks and Financial Institutions will always try to minimize the risk that might occur hence with the type of application process.
  • Low Chance for New Businesses – Banks and other financial institutions often grant business loans to existing and operating businesses. It is more risk averse to grant a loan to existing businesses.