Commercial loans: What are The Pros and Cons?
If you are business and are considering taking out a loan to cover start-up, running or expansion costs, you may have some questions lingering in your mind. You might be wondering what the benefits and drawbacks of business loans are, and how this could directly affect your business.
Pro: Fixed and low-interest rates
One benefit of being a business, which is looking for a business-sized commercial loan, is that banks with reward you with low-interest rates which are set for a fixed period. The financial bonus of this is that you won’t see your business loan repayment total take exponential hikes every month.
Pro: You can predict how much you owe
When you take out a business loan, you will know exactly how much you owe each month. You will reach a pre-agreed payback rate with the lender, although there may be charges for repaying the total early. The reason for this is that lenders can make a loss by customers repaying the rest of the loan early. However, knowing you have regular repayments due makes paying back the total amount much more stress-free, and you can plan other business expenditures around it.
Pro: A secure, professional service
Receiving a business loan from an official professional lender should put your mind at rest when it comes to the security surrounding it. Applying for money from peer-to-peer lenders, for example, can be far less secure. If you are considering forms of lending like this for the low interest rates, it’s worth remembering that you won’t receive government protection from a peer-to-peer lender.
Con: Interest rates vary over time
Interest rates can be low on commercial loans, but this is sometimes determined by how well the economy is performing. The price of your fixed interest rate is essential to counter the cost of any future inflation. Your interest rate deal may very much be a product of the times, and not how well your business is performing.
Some lenders may ask for your business to list some assets, which they can then seize, as a consequence of you not repaying your loan. It can be particularly intimidating for new enterprises, which may be looking for a commercial loan to cover their start-up costs. Sometimes personal as well as business assets can be included in this.
Con: Start-ups will need to answer more questions
As anyone who has started up a business will know, part of the beginning process of a company will involve a lot of a lot of proving yourself. Unfortunately this applies to a commercial loan too, but hopefully, you will have anticipated this already. Getting your credit score checked, having a strong business plan, and proving your intentions to the lender will all help make this first step far easier. Yes, you will have some paperwork to do, and collateral may be part of it, but watching your business flourish should make it all worth it. Our business planning service can assist you in creating a great business plan, along with a financial forecast, which is incredibly integral for monitoring expected expenses and incomes.
As with any investment, there are some pros and cons to consider before signing the paperwork. However, when you take out a commercial loan, the chances are you’re doing it to secure the future of your business. With a practical strategy, and safety measures in place, you should soon begin to see your investment pay off.