All entrepreneurs have heard of the grim consensus: more than half of all businesses fail during the first year. Even if we acknowledge the more accurate estimates (about 20% fail within the first two years, according to the Bureau of Labor Statistics), the fact remains that the risk for failure is high for startups and new businesses.
When a business urgently needs funds to pay suppliers and overhead costs, and they aren’t generating enough money yet on their own, owners may have to apply for a working capital loan.
Banks: The Common Choice for Business Loans
Banks may be the first place people consider when they need working capital loans. It makes sense: banks have more reserves and can easily finance a considerable sum for a business if it grants its application.
Unfortunately, this privilege comes with many strings. Bank financing has several pain points, which many business owners don’t want to deal with, or maybe do not even know about.
The Downsides to Bank Loans
We have talked to many entrepreneurs and companies in our years of providing business financing solutions, and many of them have shared their woes regarding bank loans. The following are some of the reasons they opted to seek financing from Regents Capital Corporation instead.
1. It’s Difficult for Many to Qualify for Business Loans
Banks look at the viability of a business and only grant loans to those with a track record of profitability. If they’re not looking at whether a business can pay back what it borrowed, they’re looking at the collateral.
2. Banks Ask for Interest Rates That Are Too High
When utilizing a bank loan, borrowers will be saddled with high-interest rates that practically offset the funding they receive. In many cases, businesses get approved for loans that are insufficient for their needs. Apart from working hard to earn enough for their monthly loan payments, business owners need to find funding for expenses they can’t cover with their loan.
3. Bank Loans Can Have Regrettable Covenants
Many entrepreneurs sign loan agreements without fully understanding the contents, especially covenant clauses. This has led to many unfortunate outcomes, like being forced to use their own homes as collateral through a second or third mortgage, or giving banks the right to claim payments from spouses’ discretionary incomes if the business doesn’t have enough cash flow to support the loan.
Choose a Working Capital Lender Who Will Help You Find the Best Loan for Your Business
Working capital loans are useful for short-term financing needs. However, if circumstances arise that make your business lose steam, these loans can become a burden.
You can avoid the trouble that comes with working capital loans from big banks by applying through non-bank financial institutions instead. Here at Regents Capital Corporation, we can offer low, fixed interest rates, higher ROA opportunities, and help you preserve liquidity and lines of credit.