Borrower risks: how to minimize them?
Many potential entrepreneurs have a strong belief that starting a business on credit is the solution to their issues. First of all, it is explained by the lack of business experience. It seems to them that the main nuance lies only in the lack of funds.
On the one hand, your business will develop at an accelerated tempo, but you will have to pay back for even more than one year. The risks can be minimized to the maximum. How, we will consider further.
Reducing borrower risks
First of all, do not borrow a large amount of money at once. If your business does not develop according to the most perfect profile, you will get rid of issues with debt obligations.
The next important aspect. Do not forget that there are lending market features that are not dependent on you personally, and you cannot affect them. For example: you open a store, it brings a steady profit. But at some location nearby, a huge shopping mall opens, where renting a retail space costs a lot of money. The situation turns out to be complicated: either you rent an area for a store in it, or you simply cannot withstand the competition.
And in order to open a store in a shopping mall, you need to get a banking loan again. It turns out that to pay debt back is extremely difficult. Keep in mind that the situation can develop in this way and do not involve yourself into debt.
What else do you need to be prepared for:
- irregular working hours;
- complicated stressful situations;
- to the fact that you won’t be able to get out of the business until you close the loan, etc.
Pros and cons of taking a loan
First, let’s analyze the advantages of cash loans in Memphis TN.
Pros
Easy to arrange.
Large banking organizations have long established the procedure for obtaining a loan for a business. In order to receive funds, you will only need to collect the necessary documentation package and wait for the bank to make a decision. This usually takes up to three days. More in-depth inspections of entrepreneurs are not always carried out.
It is convenient to apply for a loan.
It is no longer necessary to visit the bank’s office in person, it is enough to fill out an application on the official website of the credit institution and wait for preliminary approval.
Long term crediting.
It depends on the purpose for which you are applying for a loan. The term can be increased by a decision made by the banking organization.
Reduced rates.
If you have property that can act as collateral, then the interest rate on the loan will drop to 12-15%. This is significantly lower than for conventional consumer loans.
Cons
So should you take a loan for a business? Let’s find out all the cons.
Property for collateral.
If you simply do not have it, or the value of the property does not reach the loan amount, it is problematic to use lending. Especially if you are just starting your own business. A car, real estate or equipment is considered suitable for collateral.
Loan rate.
If your business is developing at a high rate, then overpayment for using a loan is not a great deal. But when the business is practically unprofitable or requires serious investments, paying off the loan can become an unbearable burden and lead to bankruptcy.
Serious requirements for the borrower.
Excellent credit history, high income are the standard requirements. Therefore, if you have outstanding loans or overdue debts, you should not count on the approval of a loan application.
A business that has recently started operating.
A large number of banks offer lending services to start-up entrepreneurs. In fact, this is most often just an advertising trick. If you started doing business less than 6 months ago, you will not be issued a loan. Most likely, they will offer regular consumer lending.
Problematic payment schedule.
The difficulty lies in the fact that the date of your receipt of profit is difficult to compare with the date of the next payment on the trust loan. If you have another source of income, there will be no problem, and if it does not exist, it will not be at all easy to pay the loan.