Taking up a loan for your business can be an intimidating process, especially for your first time in the process. Fear of the unknown often leads to preoccupation with perceived risks whilst disregarding, or at least failing to fully appreciate the tangible benefits.
For clarity and balance on this matter, it's important to highlight the advantages of business loans and what they can do to grow and benefit your business.
Protecting operating cash flow
People need to service all sorts of needs and requirements. This can range from stock, equipment, IT, office space, marketing promotions, talent, etc. While some businesses may be able to scrape by and manage these costs within their own budgets, it can leave them a little stretched across the board.
Taking a business loan to do so instead, protects your operating cash flow giving you the breathing room to accommodate the unexpected costs which often arise in day-to-day operations. It allows you to make your purchases/run your campaigns etc with confidence instead of trepidation, knowing you haven't put the business on the line. You can then use the income gain generated to pay back the loan itself.
Business loans are secured
Unlike many personal loans, which are often used by individuals for business purposes, business loans are secured against the business name itself. The security that’s often used can be owned by the company i.e. property, cars, trucks, vans, certain business equipment etc. What this means is that if you’re unable to repay your debt, the lender will look at these assets to recuperate the costs instead of you and your personal assets.
This isn’t the case with personal loans of course where the individual takes the responsibility of the debt themselves. What the business loan provides is personal protection for you and your family if the business unexpectedly suffers.
Retaining full ownership of your business
Anyone who’s watched an episode of Dragons’ Den will know that another option to acquire support is through Angel Investors/Venture Capitalists. What viewers of Dragons’ Den will also know is this comes at a cost of ownership equity, and sometimes quite a considerable amount of it.
The Dragons bring all sorts of expertise and networks/contacts so this isn't to criticise that, but the moral of the story is that with a business loan, you get those funds whilst retaining full ownership and control over your business. For those who've already got good networks/contacts, the business loan option is well-suited.
Convenient repayment options
Generally speaking, lenders and banks (perhaps to a lesser extent) can offer repayment plans that will suit and complement the needs of your business. It's an extremely competitive sector so the ability to tailor packages to the needs of a range of clients is critical.
You can often make weekly, fortnightly or monthly payments on a regular date that suits you. For secured business loans set against assets like motor vehicles, you may be able to spread repayments over a number of years. If the loan is secured against property or land you can sometimes structure payments up 5 years.
Some banks and lenders (or finance companies) also provide a management service incorporated as part of their management fee with advisors who can point you in the right direction on matters to do with your business that can benefit yourself and your customers. If you're a new business or have only been operating for a short while, this advice can be invaluable and may help you avoid costly mistakes. It's very much in their interests for you to succeed as it'll ensure they get their money back leading to better chances of them securing return business.
With a personal loan, you'll be on your own in this respect and most likely have to pay others for advice.
Competitive rates, nominal fees and tax-deductible repayments
Again, because of competitiveness of the sector, rates can be quite favourable for those seeking business loans with nominal fees. Rates and fees can vary somewhat and some people use comparison sites like but it's often best practice to invest time to meet and have dialogue with potential lenders as you'll also be able to gauge the quality of service you can expect to receive going forward.
Another bonus in getting a business loan is that the fees and interest on the repayments are usually tax deductible, though you should always seek qualified advice on this specifically with you in mind as cases will depend on the situation and context of your business.
The advantage of a finance company loan vs a bank loan
The first advantage is to do with time. A business loan application from a bank can be time-consuming. Banks often have strict criteria for approval with significant underwriting required. Your business credit needs to be good and a minimum revenue period of 1 or 2 years is typically needed to demonstrate your means to pay it back. A business plan is also usually required as well as your accounting information and financials. In total, the application process can take several weeks.
With finance companies, an application can usually be assessed within 24 hours or in some cases 60 minutes. That’s because unlike banks, finance companies don’t have thousands (if not more) customers already on their books with other services that need tending to. If you require your business loan quickly then a finance company can have it in your account the next day, a feat unlikely to be matched by the banks.
Finance companies are often in a position to be a bit more flexible with loans as banks will often accept very little risk. It’s not uncommon for a bank to only be willing to meet 80% of the funds in a loan application request which can still leave you with considerable funds to secure. Finance companies are often more willing to take on short-term loans if bridging finance is required, which might not always be worth it from a banks point of view given the amount of work required to process a loan application in the first place.
Very rarely is there a one-size-fits-all solution to any given scenario or situation and a business loan might not be right for everyone. What we can say with confidence however, is that there are strong benefits to be gained from taking a business loan with many people having done so and profited accordingly.
About the author:
Dougal Shand is a registered Financial Adviser, Managing Director and Founder of in New Zealand. Prior to starting Admiral Finance, Dougal worked in New Zealand, the US and Europe, as both Audit Manager and Management Consultant for KPMG and as Financial Controller for Auto Credit Trust in London. Feel free to !