One of the most important keys to success for any small business is having reliable access to funding. As a small business owner, you may need an influx of cash to cover unexpected expenses, invest in new equipment, expand locations, or hire more employees.
Whatever your reason, a loan is one way to secure the funding you need to run and grow your business.
What is a small business loan?
Small business loans are funds borrowed from a lender like a bank that must be repaid with interest. All lenders have different criteria for their loans, and specific terms and interest rates as well.
While traditionally business loans were only available from established banks, alternative lenders are now available for entrepreneurs to get access to the capital they need.
There are also more options outside of traditional business loans, which offer more flexibility and less personal risk.
Pros of a business loan
Low interest rate
Entrepreneurs with good credit can typically get a low borrowing rate on their loan. The interest rate will depend on your credit score and amount borrowed, among other factors. On top of that, the interest you pay is often tax deductible.
Access to large sums
You can access a relatively large amount of capital for large-scale projects or growth. The money builds a credit rating, and also creates a good financial reputation for your business from early stages.
Maintain control
Unlike borrowing equity, obtaining a loan provides you full control over your business. Lenders don’t get involved in any aspect of running your business, which means you retain full control and management over your company’s operations, while still reaping the benefits of extra cash.
Cons of a business loan
Tough to qualify
Qualifying for a small business loan often requires strong credit. If you have bad credit, or even okay credit, you may have trouble qualifying. Banks are extra careful with lending, and want to make sure you can pay it back.
Long wait time
Loans could take weeks to get approved or rejected because of the strict guidelines and asset evaluation of your collateral. If you need fast access to capital, you may want to seek alternative funding options which can have you funded in as little as 24 hours.
More personal risk
If you cannot repay your loan at the time allotted, you run the risk of losing your business or personal assets. Often, borrowers must provide the lender some sort of guarantee, such as having their personal assets seized in the event the business fails and is unable to repay all or part of a loan. The inability to pay your debt will impact your business credit and possibly your personal credit score as well.
Conclusion
Ultimately, the decision to take out a small business loan will depend on your specific requirements. While they can provide you access to large sums of money at low interest rates, not all applications are accepted and can take weeks to be approved.
If you need access to cash, and traditional loan options aren’t meeting your needs, click here to learn about our alternative funding options for small businesses.