Small Business Brief

Financial Services

Ready for Massive Growth? 6 Advantages of a Bank Loan for Small Businesses

About 73 percent of all small businesses have needed some type of financing in the past.

So if you’re looking for funds to start or grow your business, you’re not alone. What’s more, there are a number of business financing options to choose from. You could run a crowdfunding campaign, pitch your ideas to angel and equity investors, borrow from friends and family, or even go in for a bank loan.

In this article, our focus is on bank financing.  

Keep reading to learn the advantages of a bank loan for your business.

Approval Rates Are Trending Upwards

Banks, especially the big ones, have long had a reputation of turning down small business loan applicants, and it’s easy to see why.

The Great Recession of 2008 had a massive effect on the banking sector as lots of loans went into default. Consequently, banks tightened their noose on applicants without a proven ability to repay. This meant small businesses without any proof of income had little chance of getting approved for credit.

The situation is changing, though.

As the economy gradually recovers, approval rates for small business loans have been on a steady rise. In 2108, big banks approved 25.9 percent of small business lending requests, up from a paltry 8.9 percent in 2011. Approval rates are even higher in community banks and credit unions.

If you’ve been staying away from bank loans because you weren’t sure of getting approved, now you have a better chance. Go for it.

No Ownership Dilution

Ever heard stories of entrepreneurs who lost their businesses because they gave away more than 50 percent equity?

Ownership dilution is the biggest risk of equity financing. For equity investors to pump money into your business, you’ve to give up a certain percentage of equity. The more money the business needs, the more equity you’ll give away.

But when it comes to bank loans, you don’t have to worry about losing ownership in your business.

You see, banks are interested in your ability to repay the money you’re requesting. You’ll get the money your business needs and retain 100 percent control of your business.

Affordable Interest Rates

Banks charge interest on business loans. This is how they earn their profits.

The good news? The interest rates are reasonable.

On average, small business borrowers pay an annual interest rate of 4-10 percent – depending on the bank. This means if you’re planning to take out a $10,000 loan that’s repayable in a year, you’ll repay a total of anywhere between $10,400 and $10,100.

As a small business owner, you’re probably operating on a tight budget. The last thing you want is financing that drains a lot of money out of your business, right?

With the low interest charged on bank loans, you’ll rest easy knowing you can service the debt without jeopardizing your cash flow.

Access a Variety of Credit Facilities

Gone are the days when banks offered general business loans.

Today, there are different types of loans available to business owners. They include:

  • Working capital loans
  • Term loans
  • Business lines of credit
  • Equipment loans
  • Merchant cash advances
  • Invoice financing
  • SBA loans
  • Invoice factoring.

This makes the loan application process more convenient and ensures quick approvals.

For example, if you need money to purchase office furniture, computers, and other assets, you should go in for equipment financing. Right off the bat, the bank will know what you need the money for.

Let’s take another example. Say you supplied some items to your clients, but they are yet to pay. As you wait for the payment, your business runs low on cash. What do you do?

In the past, you could go to your bank and explain the situation. However, because banks had no way of telling whether your clients would pay up in time, chances are high your request could be declined.

But now that banks offer invoice financing, all you have to do is provide copies of the invoices to your bank and it’ll fund you.

You Can Secure Large Amounts

Need a million bucks to grow your business? You can get a bank loan worth this amount.

You just need to prove to your bank that your business needs this amount and you’re able to repay.

And if traditional banks decline to offer you the amount of money you need, there are alternative lenders you can turn to. World Business Lenders, for instance, offers business loans of up to $2 million.

Spend the Money However You Like

Generally, banks don’t have a say on how you spend your loan proceeds. You have the freedom to use it however you like, just as long as you keep servicing the debt on time.

There’s an exception to this, though.

If you’re approved for an equipment loan, the bank may cut a check to your equipment suppliers instead of giving you the money. In this way, one can argue that the bank has controlled how the money is spent.

On the other hand, when you take money from an equity investor, you may have to cede some of your rights. Since investors stand to lose their money should the business collapse, they usually want to ensure their money is put into good use.

Personal Liability Protection

Any loan comes with a risk of default.

If your business runs into losses, you might not be able to meet your debt obligations.

However, depending on the structure of your small business, you may have some personal liability protection. This is usually the case when your business is a limited liability company. The bank can only pursue business assets when trying to recover its money – not your personal assets.

Enjoy the Advantages of a Bank Loan for Business

When you need business capital, securing a loan is one of your options. And now that we’ve fleshed out the various advantages of a bank loan for business, you have every reason to start looking for an ideal lender.

All the best and stay tuned to our blog for more business advice.