Advantages of business loans
Handy and easy to get to- Business loans are quite accessible and convenient as you can a large amount of money through business loans.
Many Loan options- Banks advertise various types of schemes to attract entrepreneurs setting up or running a business. The real earnings for a bank come from the interest they charge on these loans. Many options like term loans, standard business loans and others are available for the entrepreneur.
No profit sharing- Banks do not ask for any profit sharing from you. If they sanction a loan, they are only interested in getting their interest and partial loan payment instalments.
Lower rates of interest- Banks provide business loans at lower rates of interest than other types of loans like credit cards.
Bank loans offer tax benefits- Small businesses taking loans from banks enjoy some relief from tax, since the percentage of profits used to repay the loan is exempted from tax.
Disadvantages of business loans
Lengthy application process- Banks need to verify all details about the business before sanctioning a loan. Therefore, its application process is very long and it takes a long time.
Cumbersome- The amount of detailing that banks require is really cumbersome, and from the borrower’s point of view, totally unnecessary.
Preference given to existing, running businesses- banks prefer running businesses because they can measure its profitability and credit history before sanctioning the loan.
Many conditions to qualify for the loan- banks have long list of conditions that a business should fulfil before they grant the loan. It is sometimes not possible to meet all of them.
Risk of losing Collateral- bank loans are generally sanctioned against some collateral, often the borrower’s house and property. This stands the risk of being lost to the bank should the business fail to be repaid.
Entire amount not granted- banks only provide for grant 70 or 80 % of the sum applied for. This makes it difficult for the borrower to begin since he has to arrange the remaining balance himself.