If you are lucky enough to already have money to start your own business, that is amazing! But chances are that is not how it is going to go. Over the next few weeks we will go over the different options to get your shop going, or to keep your business afloat. This week we will kick this series by talking about business loans.
A business loan is a chance to get the capital you need for your business from a bank or other financial institute. But is it the best option for your business?
First, let’s look at some of the advantages of getting a business loan...
- Easy to Access
- You can get one through your own bank or one of the dozens of other banking options in your area. Chances are there are multiple options within a 15-30 minute drive from your business.
- With this option, the business is still 100% yours, no one to share profits or decisions with (unless you have a partner)
- There are multiple business loan options. Banks like loaning money which is why they have competitive rates.
- Tax Exemption
- Business Loans can offer a tax break based on amount of the interest you have repaid on the loan.
- Interest Rate
- Interest Rates for a business loan will be far lower than just using your credit cards to get your business going/keep it afloat, trust me on this. Most banks have small business loans starting around 5% - 6%.
Now, let's look at the disadvantages...
- Interest Rate
- Yeah I know it was up there as an advantage, well it kind of is a double edge sword. Most banks have a starting small business loan amount of around $150,000, usually with a 5 year/60 month term, even with only a 5% rate, that means a monthly payment around $2800.
- The Bank may not approve your loan, or if they do it may be for less than the amount you are requesting. They may only loan you a portion, which gives you lower payments, but you now need to figure what you can cut out to get the loan to work for you, do you hire one less person? Do you cut items from your product list?
- If you are a start-up it will be more difficult to get approved than if you are already up and running.
- The Headache
- A lot of work goes in to getting a business loan, the loan application process in lengthy. The bank is going to need a lot of information about your business, where it was at least year, where it is now, you plans for next year, the following year, and so forth. They will ask about each and every item in your business that has any value. A while back we wrote about creating a business plan, do it and take it with you, it will make the process easier.
- Losing it
- If you have trouble paying back the loan, you could lose your collateral, which in some cases may be the business itself, or the items you use, tables, products, or it could even be your home.
When you have a business there are a lot of things that can go wrong and a lot of tough decisions to make, but there's also a whole lot of potential triumph.
As always, good luck and good sales!