Banks are, for many companies, a godsend. They can offer loans and funding that works with a company’s business model and also provides them the prestige they need to make things happen. However, most of the companies that have those positive experiences with banks aren’t small businesses – or even new businesses.
For most small businesses and new entrepreneurs, banks can actually pose a serious threat to your company’s wellbeing. Here are five ways that bank loans and lenders can cause problems for newbie entrepreneurs...
- Bank lenders can reject you for a loan, causing an unwanted dip in your FICO score. If you need to keep your credit score pristine, bank loans aren’t good options. A credit check inquiry will cause a temporary FICO score dip. If you get rejected by a bank, your FICO score will lower – and you still won’t have the money you need. The more rejections you get, the lower your score could dip.
- They may require you to borrow more than you actually need (or can afford). Banks do not make much money on small loans. Their profit is completely based on interest and fees. Small loans garner less interest, which means that they generally won’t approve you unless you borrow a certain amount. If you’re a small business, taking out a huge loan won’t make sense – and the payments alone could cripple your ability to make a profit.
- Bank loans also can be too unforgiving and inflexible for new businesses. Bank loans work in a straightforward manner: you pay the same amount every month. This is great for companies that are established and well-off, but not for new companies that have unpredictable income. Many new companies end up being unable to keep up with payments on their loans, which in turn causes default.
- Banks also can be restrictive on what you spend your money on. Imagine taking out a loan, only to find out that you can’t use the money on what you need the money for. It happens to many companies – and as a result, they end up feeling fleeced by bankers.
- Collateral can also mean that your equipment will be taken away. Most banks require collateral for business loans, often in the form of business equipment. If you fall behind and the banks repossess your equipment, you’re basically out of business as a result of banking policies.
Most of the ways that banks can harm your company can be avoided by simply taking out a merchant cash advance. If you want to avoid these issues, give CPS a call. Our merchant cash advances are designed to help companies blossom – and give them as much freedom as possible.