The pros and cons of taking out a business loan right now
For small business owners, obtaining a loan may be the primary, if not only, means of getting their business off the ground. Many of these businesses rely on a small business loan to stimulate growth and develop new business strategies. In the past, many small business owners turned to banks and credit unions for small business loans.
However, with a loan disapproval rate of over 80%, today’s small business owner can no longer rely on these more traditional options for securing a loan. Reasons for disapproval include inadequate cash flow, limited collateral, poor credit score, lack of a solid business plan, or carrying too much debt. The good news is that there are other loan options available to the small business owner.
Before you decide on what type of loan option is best for you, you need to be aware of the pros and cons of taking out a small business loan.
Should you wait until next quarter?
Some popular small business loan options include:
- Small Business Administration (SBA) Loans
- Marketplace loans such as Funding Circle, and StreetShares
- Business credit cards
- Merchant cash advances
- Invoice factoring with companies such as BlueVine and Fundbox
- Alternative lenders such as OnDeck and Kabbage
Each one of these options has its pros and cons. Some of the pros to these alternative options include:
- Fast and easy application process
- Specific collateral not required
- Lower interest rate and/or interest rate promotions
- Short-term access to capital to help with gaps in cash flow
- Flexible repayment options
Some of the cons these of options include:
- Lower business credit score means higher interest rates
- No prepayment savings
- Constraints on credit limits
- Shorter loan terms
Being an early stage startup with limited business experience, lack of a solid business plan demonstrating growth projections, and a lack of revenue are going to result in loan disapproval. Working to improve credit scores, building business revenues, and developing a sound business plan that demonstrates your business needs as well as your wants can go a long way to convincing a lender that approving your request for a loan is not going to be a risky proposition.
Make the right decision
With so many pros and cons of small business loans to consider, it makes good business sense to engage the services of a financial consulting service for business owners. GYL can provide a full range of accounting, auditing, business advisory, and tax services for your business. At GYL, we will analyze and map out solutions, both short-term and long-term, to help you meet your business goals.
We will review small business loans options with you, considering all the risks vs the rewards, and make recommendations about the options that are best suited to your individual business needs. The professionals at our firm understand the business environments in which you compete and the many challenges you face as a small business owner.