Small Business Loans: The Truth About the Money
If you are just starting your small busines, you know that it can often be an expensive undertaking. You might get tempted to head to the bank for a business loan right off the bat. However, before you get going on that loan request, consider some of these 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 will need funding for some basic start up equipment, marketing, office supplies, website etc. This can add up and having the cash to take care of all of your start up needs at once can be handy.
Allows a Timely Start: New small busienss owners often considering starting part time while still working at a full time job. A business loan could help make the transition to full time independence quicker.
Stress Saver: Having adequate start up funds from a small business loand can be a way to get your energies on making profits and getting your business off the ground the right way, rather than having to focus on how you’re 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: A loan is a loan and you will pay back more than you borrowed by paying the interest for the loan. 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: Keeping a strong credit score is imperative as a business person. 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 means understanding business financing and the advantages and disadvantages of business loans. Following your dreams and starting your own business can be worth the beginning stress and hard work. Examine your small business loan options realistically and make the best decision for you and your business.