The pros and cons of a business loan
Do you want to invest in your company to achieve growth? Then this can cost you a lot of money. A new machine or a new vehicle is not cheap and that also applies to expanding your company. Fortunately, if you do not have enough money, this does not mean that you should put such an investment out of your mind.
In such situations, borrow business money help you to grow. Have you not taken out a business loan before? Then you may doubt whether you should do this. That is why in this article we describe the different aspects of borrowing money for your business, first the three major advantages.
1. You can use the money immediately
If you want to make an investment, you certainly don't want to wait too long. Are you doing this? Then there is a chance that the competition will surpass you. When they immediately buy a new machine or a new vehicle, they benefit from the necessary advantages. Of course you are not waiting for this. Fortunately, you do not have to be afraid of this with a business loan.
If you opt for this form of financing, a lender will deposit the amount into your account in one go. This allows you to invest directly with it. This way, the chance is much smaller that the competition will surpass your company. You may even increase the lead of your company through the investment.
2. You pay a fixed interest
Borrowing money, costs money. This slogan is often used in advertisements from lenders. They do this because you do not only have to repay the loan amount. A lender charges interest on a business loan. Because you receive the amount in one go into your account, you pay interest on the entire amount. You pay this interest monthly, at the same time as the repayment. Due to the interest, a business loan can be (considerably) more expensive than you think in advance.
Because the interest rate can change from time to time, you may think that you are paying a different interest each time. However, you don't have to be afraid of this. Why not? Because the interest is always fixed when taking out a business loan. The percentage that is applicable at that time is considered. You then pay this interest on the loan amount during the entire term of the loan. The big advantage of this is that you know exactly where you stand. Your monthly costs are always the same.
3. You have control over the term
A third advantage of a business loan is that you have control over the term. The maximum term is 60 months (5 years), the minimum term is 3 months. You can also choose from a term of 6, 9, 12, 24, 36 and 48 months. You do not have this freedom of choice with business credit. A standard term of 36 months applies to this business financing form.
Many entrepreneurs opt for a term of 5 years. You spread your loan over a longer period, so that the monthly costs are lower. However, we do not recommend that you choose the longest term as standard. No, it's better to give a detailed description first calculate business financing. Can you repay your loan within a shorter period? Then choose a shorter term. Although you pay a bit more per month, your loan is cheaper. Why? Because you don't pay interest for unnecessarily long.
The 3 disadvantages of a business loan
Of course, there are also disadvantages to taking out a business loan:
- Not the same as overdraft. Taking out a business loan is not like being in the red on your standard business account, there is much more to it. A lot of documentation may be required, such as a business plan, annual figures and an investment plan. Sometimes you have to meet specific conditions, although these are usually less onerous than with alternative financing options. Your private BKR can also play a role, so that the assessment period can be longer.
- Not suitable for starters. Of course, the financial data is still missing for starters, as no profit has been made at all yet. That is why a business loan is not suitable as starting capital.
- Loan puts pressure on the company. In the best case scenario, you take out a business loan to grow your business. But when market conditions change and your business gets a little more difficult, you will feel that extra financial obligation. Therefore, make clear agreements with the lender to deal with unexpected setbacks.