Disadvantages of Small Business Loans

There are quite a few business owners who own a business which is quire prospective but can not reach the good level for want of necessary financial support. These business owners can get the help of small business loans for prospering their business. If they can use the loaned money wisely and with intelligence, it will do a great work for his business. But it is clear that there is no unmixed blessing on earth. So the small business loans have some disadvantages along with its great advantages. The business owner should be aware of those disadvantages of small business loan before they decide to go for it.

 

Think About the Disadvantages

There are people who only look at the advantages of loans when they decide to take a loan. But this is not the right way to go. You must look before you leap. The intelligence businessmen always think about the negative effects of taking a loan as well. Generally the main disadvantages of small business loan are, want of flexibility, too much waiting for approval, binding covenants, interest rates, access of the paid portion of loan and also the bank required fixed charge.

 

Want of Flexibility

After you have signed the contract with a bank about your small business, there is no chance for changing it in the future. You have to pay the bank all the installments in time and you must maintain the interest rate as well. Even if your company is going through a lot of financial difficulties, you can not deny the terms and conditions.

 

Interest Amount

The interest rate of small business loans is quite high. The persons who take other types of loans have to pay lower amount of interest rate than the small business loan appliers. As a result the small business loan owners may find it quite difficult to keep up with the amount of time to time installment. This is a matter of concern before you take your loan.

 

Binding Covenants

A binding covenant which is legal can be imposed by the bank before they give away the loan to the applier. For example, the debt-equity rate has to be kept under a certain plane for the total period of the loan. If the loan applier agrees to this condition, the bank is enabled to tell the business owner to pay back the loan right away.

 

Long Approval Waiting

The business owner may want the loan money as soon as possible for his business. But the bank will run in its own way and will issue the money only after they have completed all of their formalities. As a result the loan applier may get the money after one or two days they expected. Technology has been developed greatly in this era and these formalities have become quite easier to perform. Still sometimes too much time is required and this can harm the business owner.

 

Other Disadvantages

Two more major disadvantages have to be faced by the loan applier while taking a small business loan. The first one is the repaid amount of money can not be accessed by the lender if they do not call for a new loan. The second one is the bank will want the businessman to maintain a fixed charge or some other form of security.

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