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The
biggest advantage of taking a business loan is that
it allows you to retain the owner ship of the company.
This is contrast to what you would be doing in case
you were to raise funds through investors, whereby
you would have had to sell part of your company
to investors. If you chose to raise your finance
through investors, you will have to share the profits
of the company with them too. In case of a business
loan, you have to only the interest to pay back.
The next biggest advantage is that you can use the
loan money for any business related purpose, such
as buying machinery, office equipment or paying
off a pressing debt without using the cash and working
capital for these purposes. A business loan generally
has low up front payments. Additionally it allows
you to design a repayment schedule thus giving you
the opportunity to match payments with projected
cash flows, which significantly reduces the strain
on working capital. Also since the loan schedules
are generally preset, it helps you manage your cash
outflow better.
Though the above-mentioned advantages make business
loans really attractive, there are certain disadvantages
that you need to be aware of as well.
The one disadvantage that tops the list is that
taking a business loan can affect your personal
credit rating or your position with the bank.
The second disadvantage is that any business loan
requires a collateral. In order to get a business
loan from a bank or financial institution, you will
require to offer your personal asset such as your
home or car as a collateral against the loan. This
asset is what offers the security for the loan money
to your lender, in case you default on your repayments.
Make sure you try and limit the amount to minimum
possible in order to secure the loan.
Last but not the least, the right to decide what
constitutes a default lies with the lender, which
could be any kind of obligation, not just missed
payments.
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