Advantages and Disadvantages of Receiving a Startup Business Loan

Advantages and Disadvantages of Receiving a Startup Business Loan

The startup culture has gripped the entire nation. Over the last decade, we have seen many startup ideas turn into reality. Some of them have even turned into billion-dollar business ventures. However, venturing into a startup requires a certain amount of capital. Startups can get funding through venture capitalists, invest money from their own pockets, or they could also get a business loan.

Advantages Of a Business Loan

If you’re confident about your venture and the money you will require to get going, then here are some ways a loan can benefit you:

● Retain Control Of Your Company

One of the biggest advantages of opting for a business loan is that you don’t need to give up equity in your company to any investor. It also gives you the power to run your company the way you want to, and you get to keep the profits as well.

● Save Your Money

The initial stages of a startup require a lot of capital investment. With this huge capital investment comes the risk also of losing your hard-earned money. A business loan will help you safeguard your wealth.

● Help You Build Credit

When you are opting for a business loan for your startup, it also helps you build a good credit score. Having a good credit history can be useful in the long run. As your business grows and you require more funds, this will help you secure loans easier and faster in the future.

● Help With Easy Repayments

A business loan has the option to make EMI as per your budget. Using the business loan EMI calculator, you can determine the EMI for your loan amount and spread it over the years as per your convenience.  You can choose a time period from 12-36 months for your business loan.

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Disadvantages of a Business Loan

In the end, when you take a loan, it is a debt on your shoulders. Here are some of the drawbacks associated with it:

● Difficult To Get

As easy as it may sound, getting a business loan can be a tedious task. This becomes even more tricky if you are a startup as you do not have any history and your customer base and sales are also low. You need to meet all the requirements of the lender to secure a loan.

● Credit Risk

Since financial institutions know lending to a startup can be risky, it can put your finances in jeopardy. Many financial lenders require a personal guarantee from the borrower to sanction the loan. And if you default, you could lose the money used as a guarantee and deteriorate your credit score as well.

● Interest Rate Risk

Business loan interest rates are relatively higher than other types of loans. This leads to high EMI payments which can strive for the business of much-needed cash that is essential for the growth of the company. However, if you can get a loan at good interest rates it could save you some money. Business loan interest rates start from as low as 19% per annum if you meet our terms and conditions.

● Inefficient Utilization Of Funds

If you can secure a business loan but don’t know what to do with those funds it could turn out to be a costly affair. Once you take out the loan the instalments are going to start the next month. So, make sure you have a complete plan ready beforehand like in inventory or expansion to make the best utilization of funds as it can prove to make or break your startup.

To sum it up, if you want to take a business loan, it is better to know the pros and the cons of a business loan equally well. Paying off a loan can be stressful, no matter how easy your lender makes it for you, so make sure you benefit from it by serving the purpose.