According to the national Association of the Self-Employed, (NASE), a little under 80% of all small businesses are begun by self-employed people. According to Wells Fargo, those same individuals will try to use their personal savings account as their start-up money and risk losing everything to realize their dream of owning and operating their own small business. The unfortunate reality is that over 60% of small businesses will fail within the first four years without the proper marketing and business plans. That is why it is so important to consult with professionals in the area of financing, like Moneybanker, in order to ensure you are not only risking our personal wealth, but that you are beginning the journey of a small business owner with the right amount of capital to grow your business on a slow and steady course. Consider some of the following advantages and disadvantages to taking out a small business loan.
Lower interest rates: If you choose to consider a small business loan, you will usually be able to secure one at a much lower interest rate as opposed relying on using credit cards or cash advances.
Multiple Loan options: Ask your lender what types of loans are available for a small business owner. There will often be certain types of incentives that are offered for this type of loan that could offer you a much lower interest rate than a just a personal loan. These are entrepreneur incentives that entice potential business owners to take advantage of lending perks.
Tax incentives: The potential for small business owners who take out a small business loan to receive some tax break at the end of the year is very good. This is usually because the government will allow for a small business to retain a profit margin to pay forward to the running of the small business for the coming year. Make sure that you ask your lender questions about loans that may offer the best tax incentives.
Convenience: The convenience of payment over extended periods of time – Sometimes with the option of credit card borrowing, the more you borrow the larger the minimum payment each month. This can, unfortunately, lead to a greater amount of interest being paid as well without much room to extend the amount of time to pay the debt off. Lenders, on the other hand, can offer 10, 15, and even 25-year loans that will not balloon over time that gives a new small business owner time to increase their cash flow.
Larger loans: In 2005, the United States Small Business Association allowed for an increased amount that new small business owners were allowed to apply to a lender for from $1 million to as much as $1.5 million. This includes potential small business owners who may not have collateral to offer.
Application Process-Depending on what lender you deal with, the application process for securing a small business loan can be very detailed, full of paperwork to fill out, and a long process of verifying dozens of pieces of information. So, you want to make sure that you have as much of the necessary information on hand BEFORE you meet with a lender and discuss the possibility of a small business loan.
Collateral: Depending on the lender and how much a potential small business owner needs, there may be assets that have to be put up as collateral in order to be considered for a loan. This is a common practice, and it is usually personal property like a house or other real estate. If a loan is not paid on time on a consistent basis, then you can run the risk of losing that property.
Amount of Loan: There is always the possibility that a lender may look at your business plan, which is usually part of your application, and see some potential for a successful small business but decide that they cannot fully finance your start-up. They may choose to give you half or up to 80% of what you need. You may have to have a backup plan to secure the rest of the capital you need. So, find multiple lenders in case you need them.
Prerequisites: Know what you are up against before you go into a small business loan with the idea that no matter what, they will look at your business plan and love it. Many lenders have their own list of conditions that a potential small business owner may need to satisfy before they are even considered for a loan. This will probably include your credit history. It may also include the potential profitability of the type of business you are thinking of opening. So, make sure you have some statistics on hand to show your lender that show a positive market for the product or service that you are thinking of offering.
So, there are many advantages as well as disadvantages to take into consideration when you make a decision to pursue a small business loan.
Learn more about your best options through Moneybanker.