The bank loan: A good old classic?

Category: Portfolio

Loans are one of the classics of financing personal investments, such as a home, a car or your children’s education. Loans, especially (small) business loans are also very suitable to finance your business.

Taking a loan from a bank means you borrow money from a bank. In return, the financial institution expects interest and a timely repayment of the loan. Always keep in mind that the bank will expect repayment and interest and they are going to find one way or another to get it back, even if you are broke.

Borrowing money from a bank has several advantages:

Unlike professional or private investors banks will not have a say in your business operations and how you manage your loan. It will be your decision alone how exactly you spend the money as long as you keep the bank in the loop.
Banks don’t get a share of your profits. They only expect debt repayment and interest. After having paid your debt there will be no commitment to share profits with the bank. However, do pay attention and read the terms and conditions of the loans carefully, repayment terms of the numerous commercial loans may vary.
A loan that is specifically intended for business purposes usually has a low interest rate in comparison to many other funding options. Especially compared to borrowing money through credit cards and finance companies can involve huge fees and interest rates.
You can deduct the interest payments on your business loan from your taxes.
A business loan is available for immediate use, builds a credit rating (which helps in securing future loans) and also creates a good financial reputation for your business from early stages.
Interest rates are fixed in the contract with the bank. Hence, you can calculate precisely when and how much you have to pay back. This makes a bank loan a funding option that is very easy to plan for the future. If you read all the terms and conditions carefully when setting up the contract there will be no bad surprises in the course of taking and repaying the loan.
A loan also offers you the possibility to build a relationship with a professional banker. This relationship might prove very useful in the later stages of your business, when you are on the lookout for more money

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