Bank Loan

Topics: Debt, Loan, Money Pages: 2 (595 words) Published: April 18, 2015
Bank Loan
Bank loan is borrowing money from the bank. A bank loan is the most common form of loan capital for a business and usually provides loan for medium and long term. It is one of the safest source of finance because it has fixed interest rate.

Advantages
One of the benefit of borrowing money from bank is better rates. Normally, bank will offer loans with interest less than 10%, making them a better choice for large loans and purchases, as well as expanding their business with lower cost compared to other sources of finance. Besides, bank loans also offer fixed interest rate. The interest rate does not change during the duration of the loan and the loan payments remain the same throughout the duration of the loan. This makes it easier for business to plan their budget and monthly loan payment. Furthermore, with bank loans, we are able to make expensive purchases such as furniture and cars because bank loans allowed us to borrow a large amount of money. On the other hand, a bank loan can be secured quickly. For example, a qualified borrower can get a bank loan within an hour which is very convenient. Lastly, unlike other sources of finance, bank loans are safe source of finance. Disadvantages

The first disadvantage of bank loans is bank loans are difficult to obtain. This is because banks are careful to lend only to businesses that can return their loans, and they also make sure that they are able to cover losses. Which is why, bank loans require collateral which is also one of the disadvantage. Borrowers are required to provide personal guarantees, which means borrower’s personal assets can be seized when business fails and is unable to repay all part of the loan. Besides, bank loans also have long term cost. When we borrow a large amount of money, we need to repay bank in a longer time. The downside of taking longer to pay off a bank loan Is that we will end up paying a high amount of interest. Furthermore, bank loans also have stricter eligibility...
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