Money is probably an essential feature in business. Without money, it isn’t easy to keep a business running. Whether you take small business loans or grants from traditional financial institutions or online lenders, managing it keeps your head above water in the industry.
When new business owners want to take loans to finance their business, they are usually stuck between going to banks and applying for loans from the comfort of their homes.
Some business owners prefer to approach banks when they need loans. In contrast, others cannot afford to go through banks’ bureaucracies. Hence, they would take a faster route by applying for loans online.
Are you a new business owner thinking of a suitable option to select, whether for a bank or online loan? Here’s a guide that helps you know the pros and cons of each loan option like this list of online payday lenders.
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Bank Loans
Business owners who need additional financing would consider taking small business loans from banks. Here are some of the pros and cons of using this funding source.
Pros of Bank Loans
It allows you to grow your business
Bank loans provide a convenient way to grow your business without needing extra funds to expand it. With bank loans, you can leverage opportunities around you to grow your business, thereby enabling accelerated growth and expansion.
The approval time for bank loans varies, but it is undoubtedly a practical and great way to raise sufficient funds for your small business.
Complete control of your business
The beauty of small business loans from banks is, you get a cash injection without losing any part of your company. Some funding options demand you to relinquish some control of your company, like equity finance.
However, since a small business loan is temporary, you maintain control of your company. Once you’ve paid off your loan, you are not under anyone’s obligation.
Good reputation
The bank loan option comes with reputation and security, so some people prefer this funding source. Small business owners see the bank loan source to establish their reputability based on the bank’s offers.
No external interference
When the bank gives a loan, they don’t concern themselves with what you use it for. This is what makes them different from private lenders or other financing sources who would be interested in your next move. The banks trust that you will keep your words and make payments when due.
When applying for a business loan, ensure you have a business plan that shows how you intend to use the funds. This would allow the bank to evaluate the risk involved if they give you a loan. Once you receive the loan, you can change your plans without the bank’s interference.
Good interest rates
The interest rates on bank loans are usually better than other online lenders. If you need a long-term loan, a bank loan is better. Also, the paid interest on the loan is tax-deductible, which is another benefit of taking bank loans.
Cons of Bank loans
Long application process
Anyone who needs a bank loan for a new business must be patient. You will fill out the application form and provide various documents like your account history, business plan, etc. Also, traditional banks take much time to review loan applications, especially if you need a lot of money. Hence, you have to be patient.
You might not get the whole loan amount
Even if your loan application is approved, some banks might not give the whole amount because it is deemed risky. Hence, while you apply for a loan, seek another funding source if you don’t receive the entire amount.
Strict eligibility requirements
Banks are often reluctant to give loans to businesses, especially if they are new. Their strict lending criteria are disadvantageous to new companies because they have no financial history to plead their cause. In some cases, the bank would increase the interest rates for the risk compensation for a new business.
Online loans
The digital age has made everything more convenient. You can apply for a loan from your home and get an affirmative message within a short period. Let’s explore the pros and cons of taking online loans.
Pros of Online loans
It is convenient
Borrowing money via online loans is very convenient. You don’t need to go to a physical branch, fill out various forms and keep visiting until approved. You can fill in all the documents on your computer and wait until it is confirmed from your home.
Immediate rate quotes
When taking small business loans from online lenders, you don’t have to wait long before knowing the interest rates. Most online lending platforms have a business loan calculator that immediately tells you the interest rates for any selected amount.
Also, you can compare several loan offers from various online lenders and select your preference.
Fast processing time
Online loans take a shorter time, unlike bank loans. If you urgently need a business loan, it is better to use the online loan option to approve it quickly. Also, you are sure of getting your money instantly after the approval.
User-friendly websites
Online lenders know the importance of having a seamless and user-friendly platform where customers can easily apply for loans and get them. Hence, most online lenders have well-designed websites that ensure customers’ convenience.
Also, some of them have an FAQ section that answers possible questions you might have.
Cons of online loans
Security problems
These days, hackers are on a rampage, and anyone who submits their personal information on a platform that is not secured can have them tampered with. Not all reputable online lenders have a platform safe from hackers, so you have to confirm this before submitting your details or transacting with them.
Technical issues for non-tech-savvy individuals
Business owners who cannot navigate a website and apply for loans might find it challenging to use when they urgently need a loan. Online loan applications can be tedious, and they can fall into the hands of scammers.
Bank vs. Online loans: What makes them different
The primary feature that makes bank and online loans different is that the former is done physically while the latter is online. Each of them has its peculiarities and depending on your preference; you can opt for any.
The best loan type for small businesses: Bank vs. Online loans
Both bank and online loans are excellent sources of funding for small businesses. When considering taking a loan from either source, it is advised that you consider the interest rates, safety, and flexibility. With these three factors, you can determine what works best for your business with these three factors.
Closing Thoughts
What matters is to get small business loans from a reputable lender, be it a bank or online lender. Before applying for a loan, ensure you conduct extensive research on the lenders before contacting them. Also, check customer reviews online to see what people are saying about the lending source.