Bank loans are designed to help us in times of financial struggle. They help us to survive financially by allowing us to borrow enough money to settle our bills. In business, bank loans are available to be used in purchasing equipment, inventory and to obtain the funds and operation capital for our business expansions. Also, bank loans are regarded as reliable and honored methods to finance our business, either big or small. However, they cannot be obtained that easily. Bank loans can only be obtained if we have a long history of credit worthiness and can produce collateral as a guarantee for banks and finance firms. Aside from that, some banks are strict when it comes to their bank loan offers, which is why many people opt for bridging loans instead.
Given that, as citizens and probably business owners, weighing up the advantages and disadvantages of having bank loans must be considered. In this way, regrets can be avoided in the end, and more success can be met. Below are only some of the top advantages and disadvantages of bank loans in our life both as citizens and business owners. So, let’s start!
Advantages of Bank Loans
More Control in the Business
The first advantage of bank loans is that it can give us more control in the business. With bank loans, we can borrow an amount that we can use to improve our business, as well as its capability to provide more services or products to the valued customers. Now, as we already borrowed an amount from a bank, we can control the operation of our business, its plan, and its goals in the future. As we hold the money for these things to happen, we are poised to ensure that our business becomes successful.
Moreover, unlike equity finance, bank personnel do not become involved in a business’s operations or decisions. Thus, the control of the business is still left to its owners.
It is only temporary
Next, if we borrowed an amount from a bank through a loan and we finished paying it on time and contract, it will literally come to an end. So, bank accounts are temporary depending on the amount we borrowed, as well as the agreed amount of dividend payments in a certain period. Once we have finished paying our loan, we will no longer be obliged to be involved with the bank lenders and the bank itself. With this, we can enjoy more of the running of our business while we earn.
Lastly, bank loans have tax-deductible interests. Additionally, this is best with fixed-rate loans wherein interest rates are not changing during the course of the loan. With that, loan service payments will remain the same throughout the period of the loan. Also, with these, it can make be easier for us to plan and budget our monthly loan payments. With the additional help from a spreadsheet for computing our future payments in the business, our business life can be managed easily and effectively.
Enough with the advantages, let us now proceed to the disadvantages of bank loans.
Disadvantages of Bank Loans
Tough to Qualify
The top and greatest disadvantage that we can possibly encounter with bank loans are that it is tough to qualify. Here, it will be hard for us and our business unless there is a valuable collateral or a substantial track record such as real estate. This is because banks are being careful when it comes to their clients. They see to it that the clients have the capability to pay loans and to ensure that there will be no losses or defaults. Moreover, business borrowers will be required to provide personal guarantees wherein assets are seized when failure or being unable to pay the loans result.
When it comes to businesses, there can be an increase in terms of the interest rates as well as insufficient bank funding. High-interest rates in bank loans will never help with funding a business. Instead, it will only make it more difficult for us when repaying the loan. So, we better be wise when choosing a bank that offers bank loans with interest rates.