Pros And Cons Of Business Financing

Posted by The Waste Admin on June 22, 2015 in Business |

Most businesses are nowadays turning to borrowing or applying for business financing due to the harsh economic times we are living in. This usually helps caution such businesses during such times. This is because some businesses cannot run on their cash not unless some extra cash is injected into such business or else it will but shut down. This is the major reason as to why many business people are using loans nowadays. But just like anything else, these business financings have their own pros and cons which one must look into well before submitting your application to whichever financial institution.

On the other hand, there are some facts that you will have to know regarding these financing to be in a position to tell whether you are ready for it or not. Also, such facts will enlighten you on the best plan to take if you will have to take one.

When it comes to loans, there are two major categories that include the unsecured and the secured loans. This is a very important aspect to understand. For the secured, just the way it sounds, you will have to leave some sort or security when applying for the loan. The security, on the other hand, must be something of more value than the loan you are applying for. This security can come in the form of a property, big machines, for instance, the ones used in construction, a piece of land and many more. These things will serve as collateral to your loan. Here, you are given the liberty to choose what you will bring as a security before the finances are released. The best thing about secured loans is the fact that you can easily get one without much struggle since you have something that is actually of more than you want to borrow.

As for the unsecured loans, there is no collateral needed. But it is not easy to secure one such loan because most banks consider it very risky since the borrower can fail to repay the loan and yet there is nothing that can be either sold or taken to recover the loan. Of course you should also always look for discounts.

However, both these loans, that is the unsecured and the secured loans serve the same purpose, meeting your financial needs and as a result can come in handy when you really want some financing to either start or even finish your business projects. But they are too known to have some advantages as well as disadvantages. For instance, if you are lucky enough to secure a secured loan then you can be guaranteed that you will be paying back your loan at very minimal interest rates when compared to other forms of financing. This is because the secured loan is usually backed by some security. When applying for a secured loan you will also be guaranteed to access some large sum of money as compared for instance to the unsecured loan where there is a certain limit you cannot do beyond. But it will also depend on the kind of security that you are using. For example, if you are using an estate, you will get an amount that is equivalent to almost 80-90% of the real value of the security.

However, one of the worst disadvantages of the secured loan is the fact that should you fail to repay your loan as agreed in the term and condition, the lender or the financial institution which gave you the financing has all the rights to recover this loan by taking whatever that was put as a security during the loan application. In other words, the lender can even choose to sell your estate, if that is what you used, min order to recover his money. Also to that, secured loans cannot help you when you want some urgent financing since there is always a very long process before the financing is released. This is because the security must be evaluated to reach its real value to determine the amount of money you will be given. This will take some time.

When it comes to the pros and cons of the unsecured loans, one that stands out and even goes without being mentioned is the fact that you will not need collateral to get this loan. In other words, suppose you don’t have any property you will not need to run up and down looking for something to secure a loan of some financing. But, this kind of loan is attached to vey high interest rates and the period of repayment is usually very short.

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