What are advantages and disadvantages of …

Advantages of term loans

• The loan is not repayable on demand and so available for the term of the loan - generally three to ten years - unless you breach the loan conditions.
• Loans can be tied to the lifetime of the equipment or other assets you're borrowing the money to pay for.
• At the beginning of the term of the loan you may be able to negotiate a repayment holiday, meaning that you only pay interest for a certain amount of time while repayments on the capital are frozen.
• While you must pay interest on your loan, you do not have to give the lender a percentage of your profits or a share in your company.
• Interest rates may be fixed for the term so you will know the level of repayments throughout the life of the loan.
• There may be an arrangement fee that is paid at the start of the loan but not throughout its life. If it is an on-demand loan, an annual renewal fee may be payable.

Disadvantages of loans

• Larger loans will have certain terms and conditions or covenants that you must adhere to, such as the provision of quarterly management information.
• Loans are not very flexible - you could be paying interest on funds you're not using.
• You could have trouble making monthly repayments if your customers don't pay you promptly, causing cashflow problems.
• In some cases, loans are secured against the assets of the business or your personal possessions, eg your home. The interest rates for secured loans may be lower than for unsecured ones, but your assets or home could be at risk if you cannot make the repayments.
• There may be a charge if you want to repay the loan before the end of the loan term, particularly if the interest rate on the loan is fixed.