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3 Reasons To Not Avail Business Loans

By Expert Author: Neha Sharma

When you need finance for a business, you can always apply for a business loan. However, there are certain drawbacks or disadvantages of a business loan. In this article we give you 3 reasons why you should not avail the business loan.

Tedious application process

For any loan application, there is a certain process that needs to be undertaken, and the application process for a business loan is no different. However, the business loan application process is very tedious and at times can really test your patience. The bank needs to verify each and every item of your application, and a single mistake can lead to an outright rejection. These lenders need to verify all assets, credentials, details of the business, previous reviews etc. The nature of the data you have provided to the bank needs to be a 100% accurate. To ensure each detail is to the point of truth, a separate review of this data will be undertaken, which can last anywhere from weeks to several months. They will also judge your eligibility for the loan on a point system which will need to be adjusted as new information comes in.

Risk of losing collateral

Most business loans are secured loans, i.e. you will be often asked to be provided with collateral. Since most business loans are huge, you will have to compensate this large amount with an equal value, for example your house, or your high end car. There is a high chance that the business might not succeed, and the bank will have to foreclose on the collateral. Even something as small as missing a single payment of the business loan will signify that the business is not performing well, and thus this will signal the bank revoke the loan and demand the payment, in this case, the collateral.

Established businesses get preference in loan acceptance

Many lenders are wary of lending money to upcoming businesses as compared to established business. The reason is because, since the established business is in a solid financial state, it is easier for them to repay the business loan. Financial lenders easily prefer established businesses as they can they can gauge its profitability and credit history before sanctioning the loan. An upcoming business has a very unpredictable future and an almost nonexistent credit history. Thus it proves to be a risky investment in the eyes of the lender. Even though your new business is able to get the loan, the amount may not be satisfactory, thus you will need to compromise on your operation or some other aspect of the business facility. This is a crucial risk in a business loan, as even a single compromise can lead to the closure of your business, thus creating a vicious circle.

Author Bio :- Neha Sharma; a finance student, loves to write about business loan. She shares information related to this topic in the hope that the public can benefit from it and gain a lot of information.

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