What Are the Cons of Small-Business Loans?
Small-business loans are often guaranteed by the SBA (Small Business Association), which is part of the federal government. As with any loan program, there are pros and cons of getting a small business loan. Understanding the risks should help you decide if you want to apply for this type of loan.
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Why get a small-business loan?
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Many small-business owners and entrepreneurs began their businesses by borrowing funds. A loan can help with start-up costs if you do not have the financial means to start your business alone.
Interest Rates
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Small-business loans generally have an interest rate of seven percent to nine percent, states My Own Business organization. The interest rate is what you pay for the privilege of borrowing the money and will increase the start-up cost of your business.
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Payment Terms
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Small-business loans usually have a relatively long repayment term. The terms of repayment vary from loan to loan but may go up to twenty years.
Payment Risks
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If your business is not profitable, you risk not having the funds to make your monthly payments when they come due.
Collateral
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Many small-business loans require collateral, which means you may risk losing your house, car or business inventory if you can't pay your loan.
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