What are the Disadvantages of Taking a Business Loan?

Taking out a business loan can be a great way to get the capital injection your business needs to grow and become profitable. However, it's important to understand the pros and cons of commercial lending before you apply for a loan. The paperwork and loan application process for commercial lending can be extensive. Financial institutions will require extensive documentation to assess your company's ability to pay back the loan.

Banks will also set a strict repayment schedule that must be followed, or else it could damage your credit rating and future credibility. The lack of flexibility to comply with the payment schedule can create problems for debtors. Another disadvantage of small business loans is the high interest rates. Additionally, the amount you qualify for may not be enough to meet your company's needs.

Bank lending may also require you to personally link the loan to the founders, and if your credit rating is below 680, the company's profitability may not be enough to convince a bank to lend to you. The interest rate you get will depend on several factors such as your credit rating, the nature of your business, your CIBIL rating, annual turnover, and payment history. For entrepreneurs just starting their startup business, obtaining a business loan may be the only way to turn their dream into reality. However, if not managed properly, commercial loans can start a cycle of debt where taking out more loans becomes necessary in order to make payments.

Commercial loans can be beneficial for many companies, with studies showing that 61% of companies become profitable after taking out a single loan. Banks and other traditional lenders usually offer interest rates between 4% and 13%. If unexpected circumstances arise, there are ways to restructure your debt in order to make it manageable for your company. Business owners usually take out loans in order to grow their business or make it profitable.