The pros and cons of getting a small business loan

A small business loan is an ideal solution for any small-to-medium sized company that is looking to get itself off the ground. The fact of the matter is that most companies are going to need a little capital to get started, whether that’s to hire staff, to invest in production and manufacturing, or to purchase or rent office space from which to work.

But that said, there is no such thing as free money. Any type of loan is always going to come with some catches and caveats. And in this post, we’ll assess what those are, so that you can decide if a small business loan might be the right choice for you getting started.

The Pros

On the plus side, a small business loan is a very simple and easy way to get hold of some cash in order to launch your big idea. Normally, this means going to a bank and outlining your business plan and, really, that’s it. You’ll need a credit check and you’ll probably need to demonstrate that you’ve actually thought your business plan through.

But other than that, you’ll be able to get money in your bank fast in order to get started. There’s no need to give away stocks and shares of your business, you don’t have ‘backers’ to try and appease, and there’s no risk of losing your other assets.

A small business loan can be fairly generous in terms of how much banks and lenders will give away, but they also tend to come with reasonable interest rates and repayment structures. With lots of options meanwhile, there’s no reason not to shop around and find the best one to suit you.

The Cons

On the other hand, there are also some downsides involved with a small business loan and especially when compared with some of the other alternatives.

Perhaps most obviously, a small business loan needs to be paid back! While the interest rates are generally fairly reasonable as mentioned, they are still there which means it will be longer before you breakeven. Compare this to crowdfunding on the other hand – which actually doesn’t require you to pay back anything at all!

Or what about bootstrapping? Bootstrapping means that you earn the money yourself by doing other types of work in order to fund the bigger projects that you have in the pipeline. This might mean that you perform some kind of service for instance to bring in a steady stream of income, then use that in order to fund manufacturing.

Then there’s the option of using your very own savings account which you obviously will not have to give back.

There are also no additional ‘perks’ to using a bank loan. While the simplicity and detached nature of the business loan might be seen as a good thing on the whole, it does mean you aren’t getting any handy advice from expert investors as you would do through an angel. Likewise, you don’t get the free marketing that you would do via a crowdfunding campaign.

Making the Right Choice

As you can see then, there are many different options when it comes to raising funds for your business. The problem is just knowing which one is best for you which will largely come down to a number of factors. What are your projected earnings? How long will it take you to pay back the amount? How much money do you actually need? And who is likely to get excited for this idea?

Just make sure that you know all your options, that you shop around, and that you also consider using multiple different sources of income as another option!