The Advantages and Disadvantages of a Bank Loan

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Home » Business Finance » The Advantages and Disadvantages of a Bank Loan

There are two main sources of assistance for businesses in regards to improved finances; one of these is a standard business loan – a fixed amount given by the bank which incurs a debt that will be paid back with interest over time; the other is invoice financing, a form of capital which is created by lending money against unpaid invoices under the agreement of a certain percentage of the total value of the invoices.

Business loans were once the only real option available to businesses. But with these loans becoming more difficult to obtain, invoice financing was created and has grown year on year ever since its introduction.

The Benefits of Business Loans

Every business has a working relation with their bank so obviously short-term bank loans are still a well-used and trusted method of short-term capital gain. To this day it remains the first thought of any business owner considering a loan, mainly because of habit and tradition, but also through that established relationship with their bank account manager. The rates of interest set by banks mean that companies know exactly how much will need to be repaid each month through fixed rates, but the interest rates on these loans tend to be high from the onset.

The Disadvantages of Business Loans

The main reason that companies try and look for alternative options to business loans is because of their credit history. If a company does not have sound credit history and is able to demonstrate that the business will definitely be able to maintain payments through a viable business model or assets that can be put up as collateral, being accepted for a bank loan can be incredibly difficult.

Business also run into difficulties when they realise that a bank loan they have received is either too much or too little for their needs and organising adjustments of the loan with the bank can be difficult.

For a better alternative cash injection to your business consider invoice financing. For more information on how invoice financing can benefit your business, contact the team at Quote Goat today.