Bank financing is one of the most common solutions when it comes to boosting a business: either to start up, grow or face supplier payments in delicate moments.
Through this operation, a financial entity grants a certain amount of money to a company in exchange for interest. The return of the capital will be done little by little, although in previously agreed terms.
Advantages and disadvantages of requesting a bank loan
Among the advantages of using this type of solutions we can highlight:
- Immediate financing: you can get rid of debts or acquire a good for the business quickly and easily.
- Adapted to your needs: the bank will normally assess your financial situation and, based on this, you will be able to define the repayment terms and the interest rate.
- Ability to forecast payments thanks to periodic installments: your treasury does not have to be affected since you will know, in good time, when you will have to face payments.
- Updated knowledge of the debt: bank loans allow you to know, at all times, what your debt is and how much you have left to repay.
Some of the disadvantages:
- Need for a guarantee or guarantee of payment: sometimes, the bank may request a guarantee in order to obtain the credit. In case of default, you could lose it.
- Commissions: in some cases, in addition to interest, there are commissions associated with the credit that increase its cost.
- Long-term debt: when applying for a loan we are acquiring a debt with the bank that we will drag until we have finished repaying all the capital.
- Procedures and paperwork: the previous procedures require a lot of information, so that the bank can evaluate your case, and this part of the process can sometimes take longer than expected.
Most common mistakes when requesting financing for the company
In addition to taking into account the previous point to assess your financing options, if you finally decide to apply for a bank loan, keep in mind some of the most common mistakes to avoid them:
- Not having a business plan: any entity will want to see that you generate enough cash to return the requested capital.
- Being too optimistic: many times we get carried away by emotion and are too optimistic in terms of sales forecasts, results or treasury. Financial prudence is essential.
- Do not provide contracts or pre-contracts with clients: when you appear at the entity, it is important to show contracts that justify how you are going to repay the borrowed money.
- Deceive to obtain financing: bank programs carry out very meticulous calculations, so it is very easy for them to detect any deception.
- Not choosing the right product for your needs: there are more and more financing products on the market that offer conditions that are sometimes much more advantageous for your business. Options such as Finance&Go from Banco Santander allow you to obtain immediate credit based on the invoices issued to your customers. In this way, you assign the debt to the bank and it advances you the money you need. You will only pay a small commission but you will not be acquiring a long-term debt.
As you can see, requesting financing is an interesting option at different stages of a business. However, it is important to choose the right product and negotiate the conditions well.