Small Business: Pros and Cons of Taking Loans From Banks


Every company requires a particular amount of cash to begin. The entrepreneur about the brink of beginning a new venture, needs to figure out where and how he’ll get access to adequate funds.

The first organization that he thinks of is his lender. Yes banks are nearly always among the first organizations to be approached for capital in the kind of financing. It’s here that brutal realities hit on the entrepreneur that soon learns how hard it’s to have a bank loan to fund his little business enterprise. A pick lucky few, do manage to meet all of the pre-requisites to get a bank loan, and are effective in procuring them. However, for every successful loan program you will find many that get refused. The hard regulations connected to bank loans are slowly undergoing a shift with banks recognizing the incredible potential of small companies. This clarifies the specific programs and extra services launched by large banks to woo modest businesses.

Bank loans are simply one of the several alternatives out there for small companies to raise capital. The final choice about where to procure funds is dependent upon the equilibrium between the advantages and disadvantages of this origin. Like the rest of the financing sources, bank loans also include their share of advantages and pitfalls.

Benefits of Bank Loans for Small Business

Convenient – Banks are almost always available as they are used frequently for depositing economies or withdrawing them. After being bank clients for many years, the lender gets convenient and comfortable, and personalized support makes it the very first place to think about for financing.

Multiple Loan Choices – all banks promote a variety of kinds of approaches to woo entrepreneurs establishing or operating a company. The actual earnings to get a bank come in the interest they charge on such loans. Alternatives like routine loans, regular small business loans and many others are offered for the entrepreneur.

Non Profit Sharing – Venture capitalists and angel investors consent to offer financing in exchange for part ownership, the right to affect decision making and a share of their proceeds. Banks don’t request some of them. Should they really do sanction a loan, then they’re just interested in receiving their interest and unsecured loan repayment payments.

Low Interest Rates -Though hard to get, banks offer loans at reduced interest rates compared to other financing agencies and tools such as credit cards.

Tax Benefits – Small companies taking loans from banks like some relief from taxation, since the proportion of earnings used to settle the loan is exempted from taxation.

It’s these benefits that prompt entrepreneurs to approach banks for among the several loans provided.

Disadvantages of Bank Loans for Small Business

However, as stated previously, obtaining a bank loan Isn’t Simple, and its own disadvantages include:

Lengthy Application Procedure – banks will need to check all of the credentials and details concerning the company prior to sanctioning financing. Therefore its application procedure is extremely long and its own inspection etc. requires quite a very long time.

Cumbersome – The possibility of becoming to the detailing that banks need is really awkward, and by the entrepreneur’s point of view, entirely unnecessary.

Preference given running Businesses – banks favor running companies since they can judge its sustainability and credit history prior to sanctioning the loan.

Long list of requirements – banks have long list of requirements that a company should meet before they clean the loan. It’s sometimes not feasible to fulfill all of these.

Collateral – bank loans are usually sanctioned against some security, often the entrepreneur’s home and property. This stands the possibility of being lost into the lender if the company don’t take off.

Entire amount not granted – banks have been proven not to agree to give the entire sum requested for financing. They can grant 70 or 80 percent of the amount applied for. This makes it difficult for the consumer to start because he has to scout around to the rest of the balance and discover bureaus to funs that until he can begin.

Thus it’s the equilibrium between these benefits and pitfalls that prompt individuals to approach banks for small business loans.