Startup Capital: Small Business Bank Loans

This article is part of the Factor King® blog series “Startup Capital: Sources of New Business Funding” which explores the most common financing options for a business in need of startup capital, expansion capital, or short-term cash flow.

One of the most common sources of business financing are traditional bank loans. The following are pros and cons to getting a small business loan from a lending institution:

Pros

• Lower Interest Rates: Banks typically offer lower rates of interest than other lending agencies like credit cards. However, interest rates may increase significantly in the near future based on Fitch recently placing the United State on Rating Watch Negative (RWN).
• Tax Benefits: In many cases, the loan interest paid back to the bank is tax deductible.
• Maintain Control: If you accept a small business loan from a bank, you can continue to run your business as you choose. However this may not be the case for large loans which are more heavily monitored and require regular submission of financial reports. If you do not maintain proper ratios, the bank may have the right to make changes to the way your business operates.

Cons

• Extensive Loan Application Process: Most banks require an extensive credit history, business plan, information on any potential investors, and profit and loss forecasts before approving a loan. As a result, it takes more time to process the application and get access to funds.
• Repayment Inflexibility: If your business fails or if you have a bad month, you’re still responsible for making the payments on time, as agreed.
• Bank Instability: With the threat of a government shutdown and default on the nation’s debt, the resulting global economic instability could be catastrophic for banks.  According to NBC in the article “What’s the Worst That Could Happen: 7 Debt Default Doomsday Scenarios,“ banking operations could freeze up and repayment would be demanded should a default ever result.

Frank Skelly of Factor King® says, “There are many advantages and disadvantages to consider when obtaining a small business loan. However, the decision regarding the type of financing to obtain rests on what the ultimate goal is for the money, as well as a company’s tolerance for debt. Benefits of factoring over traditional lending is that there is no accrual of debt, the application process is quick and easy, and factoring fees are considered expenses that are tax deductible.”

Stay tuned for next month’s article about venture capital and private equity in this series of posts related to sources of startup capital!

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About FACTOR KING®
Did you know that Factor King® offers a quick and easy way to get cash for your business without a lengthy application process? Factor King is a direct financial service provider that specializes in the Factoring of invoice receivables for companies that maintain commercial accounts receivables. We can manage your record keeping and offer fast processing of accounts receivable payments.  Apply now to convert your company’s assets into immediate cash!