Advantages and Disadvantages of Bank Loans

Bank loans are made to help us in times of financial struggle. It aids us to get through by allowing us to borrow enough money to settle our problems. In business, bank loans are available to be used in purchasing equipment, inventory and to obtain the funds and operation capital of our business expansions. Also, bank loans are regarded as reliable and honored methods to finance our business, either big or small. However, it can’t be gained that easily. Bank loans can be available only if we can guarantee the bank with finance firms with a long track record and substantial collateral. Aside from that, some banks are strict when it comes to their bank loan offers.

Given that, as citizens and probably business owners, weighing the advantages and disadvantages of having bank loans must be well-thought of. 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 can properly dwell with our business and ensure that it’ll reach success.

Moreover, unlike equity finance, banks do not take business ownership positions. Bank personnel also aren’t allowed to be involved in the business operation, whatever it takes. Thus, the control of the business is still left to us as the 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’ll literally come to an end. So, bank accounts are temporarily 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’ll no longer be obliged to be involved with the bank lenders and the bank itself. With this, we can enjoy running our business more while we earn.

Tax-Deductible Interest 

Lastly, bank loans have tax-deductible interests. Additionally, this is best with fixed-rate loans wherein interest rates are not changing during the loan course. With that, loan service payments will remain the same throughout the loan’s entire effectiveness. Also, with these, it can 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 came to happen.

High-Interest Rates

When it comes to businesses, there can be an increase in terms of the interest rates as well as insufficient bank funding. Often, businesses face this kind of concern, and it isn’t wise to just grab it. High-interest rates in bank loans will never be helpful to fund our business. Instead, it will only make it more difficult for us when paying the loan. So, we better be wise when choosing the bank offering bank loans with interest rates.

 

 

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