01.27.08

Advantages & Disadvantages of Small Business Loans

Posted in Business Loans at 4:00 pm by mark

Owning and operating a business is a time consuming and often expensive Endeavour.  Particularly if you are just getting started.  It is tempting to look for financing to get your business off of the ground or to enhance or grow your business, however before you head to the bank to apply for a loan, take a look at the advantages and disadvantages of a small business loan.

Advantages: 

Cash in hand.  When money is tight, small business loans can give you the cash you need to get your business off the ground or to expand it.  For example, you’re going from being a stay at home mom, to the owner of a service based business.  You will need basic start up equipment, marketing, office supplies, website etchis can add up and having the cash to take care of all of your start up needs at once can be handy.

Allows you to start your business full time.  One solution that many financially strapped new business owners decide to use is to open their business part time, while at the same time working outside of the home in a traditional 9-5 or part time to help pay for the new business. A small business loan can help you get started full time right away.

Focus.  A small business loan can help you focus all of your energies on making profits and getting your business off the ground the right way, rather than having to focus on how youe going to afford that new brochure and advertising campaign.

Terms.  The terms of a small business loan can be long enough that you have the confidence you will be profitable and able to repay the loan on a monthly basis.

Disadvantages:

Interest rates.  You will pay back more than you borrowed.  You’re trading money now for money in your pocket later.  Additionally, if you get a loan with a variable interest rate, you could be paying back significantly more than you bargained for.

Credit score.  When you borrow money, there is always a chance that you will not be able to pay it back.  This can lead to tremendous stress and a deterioration of your business, not to mention it will affect your credit score.

Before you make the decision to apply for a small business loan, consider your options:

Can you borrow money from family or friends to get started?
Can you start your business part time?
Can you finance part of it on a credit card?
Can you cut costs in the beginning and pare down your expenses?
Can you take some start up equipment donations?
Can you joint venture with someone to cut costs?  For example, trading advertising or services.

Starting a business can be an initial financial hurdle, however following your dreams and starting your own business can be worth the beginning stress and hard work. Examine your options realistically and make the best decision for you and your business.