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Top Pros & Cons of Long Term Business Loans
Top Pros & Cons of Long Term Business Loans

Many businesses over a period would like to seek expansion. A small food joint owner would like to open another one or a restaurant in a few years and over some time be the owner of a large chain of restaurants. Ofcourse, there is a limit to how much you can expand your business using your own finance. If you wish to grow your business quickly, you will have no preference but to look elsewhere for finance.

Luckily, banks or non-banking finance companies are keen to offer you long-term business loans, some of the prominent being SBI Business loan, Axis Bank Business loan or Bajaj Finserv Business loan, etc which you can avail if you wish to expand your business operations. That’s where the long-term business loan comes into picture. Before you apply for business loan, it’s essential to know the pros and cons of long-term business loans which will help to keep you on a safer financial side.

 Pros of Long Term Business Loans

  • Lower interest rates: The banks can depend on your willingness to keep your collateral. Banks will lend you at lower interest rates if they know the investment made in you is protected. This means simplified payments and a lower inevitable hit to your personal finances.
  • Huge amounts of loan are sanctioned, as the bank’s risk and liability are consequentially minimized. The bank will approve those loans that are close to the estimated collateral value of your asset, and not give space for any kind of potential loss.
  • Better terms and conditions from the bank: Simplified and cheaper processing (sometimes free), quick documentation and approval, and entire friendlier terms that don’t stagger you in case anything goes wrong.
  • Flexible repayment terms: You don’t need to be anxious about fines and charges applicable on settlement payments, pre-closure of your loan, settling the loan through one big payment that broadly minimizes your capital or if you want to extend your loan duration. Some lenders and banks don’t permit you for pre-closure of loan, but with secured long term business loans, this is possible.
  • Flexible repayment duration, customised to accommodate your capability to repay : You can choose loan repayments faster, with a quantum of EMIs for a shorter duration, or select to pay smaller amounts over a longer duration. It depends on your choice, for as long as you’ve collateral assets.
  • If you have a bad credit history or CIBIL score—both these indicators represent your loan repayment capability. When you add a collateral asset, the requirement for the bank to determine about getting certain of your repayment capability becomes irrelevant The reason they require CIBIL and credit history information for examining their risk level , but with an asset on the equation, they undertake minimum risk.
  • Interest is tax-deductible expense, thus it will lead you to save maximum money that would otherwise have lost to taxation.
  • Minimum income required is far much lesser as you have already pledged your asset as collateral which itself speaks that repayment of the loan can be claimed in case of default.

Cons of Long Term Business Loans

Along with the benefits that long-term business loans bring, there are also many drawbacks, such as:

  • Collateral seizing –  At the time of approving you a higher loan and a lower interest rate, the bank will not hesitate to possess all the assets you have pledged as collateral. You must be mentally prepared to give up the pledged asset as you are geared to take up the long-term business loan. You must be prepared to lose your favourite car through which you commute to your office daily or lose the roof over your head and other assets that earn your keep.
  • Repossession – If you’ve bought  a vehicle with a secured loan, you will be pledging your vehicle as a collateral against the likelihood of your defaulting on the loan. This means if you default or miss a payment, the bank will retain the rights of your new vehicle and consider all the EMI’s that you’ve paid so far as null and void. Thus, you will lose all the money you’ve paid to buy your new vehicle(along with interest) and the vehicle itself, leaving you wrecked and broke. Had you have the funds by your side,  you would have repaid the loan.
  • Lots of paperwork- Availing long term business loans require heavy paperwork formalities to be done, as you will have to give the regular documents as required (age, identity and address proof) along with documents that are associated with the ownership of your asset. You will need to attach metric tons of your specimen signatures to a series of documents, and even if one does not match with the other, you will be required to go through this strenuous process again.
  • Full ownership of your collateral asset – If you are keen to pledge an asset against a long-term business loan, you will need to have the full ownership of that asset. The asset will have to settle all your EMIs and partnership agreements and will have to be in your full ownership at the time of Applying for the Long term Business Loan.
  • Longer tenure = greater total cost – A longer duration to clear off the loan permits for more potential hiccups in your general income rate, even the slightest dip can have an impact on your repayment schedule. And if you skip any EMI payment, the bank will impose heavy penalties and fines which will synthesize and result in losing your asset. However, there is a great deal of a larger total cost involved with the longer repayment schedule, despite making smaller repayments.
  • Asset value must match or exceed the amount of loan – the loan you wish to have must be recoverable by the sale of the asset you plan to pledge. If the bank cannot recover the loss through the collateral sale, it will approach you with a legal document known as a deficiency judgement, and you will be bind to meet out your liability.
  • Living in debt – If you settle your loan even after the bank has retained your assets, you will be doomed to a life where income generated by you will go directly to the bank. Generally, you will be paying off interest and penalty charges and the principal amount will be more or less similar.
  • CIBIL Score – In any case, you default on your long-term business loan repayments, and then prepare yourself for huge suffering. If the bank has retained your assets and your house, your credit score and rating would suffer a lot, no matter whatever you do it will be difficult to recover.
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Business Loan, Business Loan, Business Loan Interest Rates, Business Loan Interest Rates, SBI Business Loan, SBI Business Loan,

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