Advantages of Bank Loans

Reliability – Unless you break terms and conditions loans are very reliable and secure. You are assured the money for the duration of the loan and the odds of a bank or major lender requiring immediate pay back is minimal. Also, unless you choose a loan with a variable interest rate you will have complete transparency of what you owe and your repayments.

Cost – A bank loan is very reasonable in cost when compared to many other forms of finance. Though loans are in no way cheap, unlike credit cards and overdrafts they do not have the interest rates or charges, and you are not required to give up a portion of your business as you would with investors.

Equipment Life – When using a loan to buy equipment, you may be able to tie the loan to the usable life of the product; this will save you having to pay out in a lump sum for expensive machinery.

Disadvantages of Bank Loans

Inflexible – Once you have agreed payment terms you must stick to them and if you borrow more than you need you may end up paying lots of extra interest unnecessarily.

Security – Having the loan secured against your home or other assets does provide lower interest rates, but does mean you need to be more careful about repayments; your assets will be at risk if you cannot keep up with repayments. Also be sure to remember to be very wary of borrowing more than you can afford to repay.

Charges – Most loans will have an initial arrangement fee, and many will charge you if you repay the loan before the end of the agreed period.

Advantages of Overdrafts

Flexible – An overdraft is there when you need it, and in most cases costs nothing when you do not (There will sometimes be a small fee). It allows you to make necessary payments whilst chasing up your own payments, and helps to maintain cash flow. You only need to borrow as much as you need at the time.

Quick – Overdrafts are easy and quick to arrange, providing a good cash flow backup with minimum bother.

Disadvantages of Overdrafts

Cost – Overdrafts carry interest and fees; often at much higher rates than loans. This makes them very expensive for long term borrowing. Charges can also be very large if you go over the agreed overdraft limit.

Recall – Unless specified in the terms and conditions, the bank can recall the entire overdraft at any time. This may happen if you fail to make other payments, or if you have broken terms and conditions; though sometimes the banks simply change their policies.

Security – In some cases overdrafts need to be secured against your business assets, which put them at risk if you default on repayments.

Paper Mountain Solutions offer a number of financial solutions to assist your business. Get in touch with the team for a free quotation.