All across Canada, there are small and medium-sized business owners who have gone to their banks to secure loans. As we’ve pointed out in many of our past blogs, a large number of these entrepreneurs are unsuccessful in securing their business loans. For those who are lucky enough to be approved by their banks, many find the entire process of borrowing money one that presents more difficulties than expected.
Of course, all loans must be paid back.
And when paying back a loan, a strict payment schedule must be adhered to. A minimum payment is due on a specific date each and every month. Depending on how well a business is functioning, it may be very difficult to keep up with those payments.
“Your sole obligation to the lender is to make your payments, but you’ll still have to make those payments even if your business fails,” explains Scott Allen on TheBalanceSMB.com, “And your lenders will have a claim for repayment before any equity investors if you’re forced into bankruptcy.”
Don’t try to pay back your loan too fast!
Some business owners think that if they take measures to pay back their loans quickly, it will help them to get out of debt quicker. This can have negative impacts on the business. For example, it can limit a company’s cash flow if too much money is designated for loan repayment each month. The Business Development Bank of Canada considers this one of the seven deadly sins in borrowing money for your business.
“Many business owners want to pay back their loans as quickly as possible in an effort to become debt free,” notes BDC.ca, “It’s important to reduce debt, but doing so too quickly can cost your business. That’s because you may leave yourself short of cash. Or the extra money you’re devoting to debt reduction might be better spent on profitable growth projects.”
You may lose your collateral.
As we’ve noted in many of our past blogs, banks require collateral to be put on the line in order to approve a business owner for a loan. That means that if a loan goes into default, the bank can seize the personal property of the loan recipient. The loss of a home, vehicle or business only puts an individual in further debt.
Allen lists the loss of cash or collateral as one of the biggest drawbacks of borrowing money. “Even if you plan to use the loan to invest in an important asset, you’ll have to be sure that your business will generate sufficient cash flow by the time repayment of the loan is scheduled to begin,” he writes, “You’ll also most likely be asked to put up collateral to protect the lender in the event that you default on your payments.”
Avoid debt with a merchant cash advance!
At Synergy Merchants, we’re proud to offer Canadian business owners a method of getting business funding that won’t put them in debt. A merchant cash advance isn’t borrowed money. It’s a payment for future credit card and debit card sales. As a result, there is no fixed repayment schedule, credit histories aren’t impacted and no collateral is necessary.