Guide to Small Business Loan Interest Rates

Buford Keith
January 5, 2009 — 1,177 views  
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If you are starting your own business and do not have enough start up cash to do so, a small business loan can be very useful. However, whenever we think of applying for loans we think of banks and financial institutions. It is true that loans taken from these banks have sound legal formalities. But sometimes these small business loan interest rates can be difficult to repay. Most of the time the novice entrepreneur fails to pay the regular monthly installments. This mainly happens because a business that has just started is less likely to be able to generate adequate revenue to be able to afford such high payment rates for these small business loan interest rates. When a business is unable to pay the installments due on these loans, it will results in negative publicity of the company in the market and even bankruptcy in extreme cases. Also, borrowers end up taking more loans in order to pay off these unpaid ones. This gives rise to a vicious cycle of bad debts.

Other than the high interest rates, the security that is sometimes demanded by regular banking companies is hard to meet. Unless you already have immense personal wealth it is possible to provide for collateral that is worthy of securing the business loan. In that case applying for the loan would not have been essential.

Small business loans are useful for initial capital formation of the company. Investments in physical space, infrastructure, stationery, wage payments, and other rents are also taken care of by these loans. Most of the time a new business does not have enough market experience to be able to boast off sufficient success under its name. Therefore, when banks and other financial institutions ask for profit returns and revenue details there is not much that these companies can come up with. However, these lending institutions do base their choice of borrowers based on business history. But for small businesses, this history is mostly very brief and devoid of much glory.

In such cases, you have the option of approaching the unofficial lenders in the market. They are no different from Shakespeare's Shylock, except maybe the pound of flesh repayment medium! But seriously, these moneylenders usually have reasonable rates of interest and adjustable repayment plans. These loans also most often don't require any collateral deposit or proof of credit history. You do not have to prove your worth by submitting your tax returns and business plans. Other than a few simple documentation procedures, these loans are much more borrower-friendly.

If you are looking for small business loan interest rates that are the lowest, beware of the terms and conditions that come with them at the same time. Banks do offer easy loans to small businesses, but most of the time they have unreasonable "conditions apply". These short-term business loans may boast of the lowest interest rates on these loans, but the terms attached to them prove more of a liability to the borrower, which most often tends to overshadow the benefits of the loan itself.

Answers about small business loan interest rates.

About the Author

Buford Keith writes regularly about business related topics. I hope you enjoy this article.

Buford Keith