A Loan is like a double-edged sword. Are you about getting a business loan? If YES, here are 10 harsh truths a loan officer won’t tell you about taking a loan.
If you are a businessman or woman, you will quite agree that business loan is a leverage not only when you want to raise startup capital for your business, but also when you need to expand your business to be able to reach out to new clientele and new business frontiers.
What is a Business Loan?
A business loan is a loan that is primarily used for business purposes. As with all loans, you will get it at an interest rate and you are expected to pay monthly installments over a period of time (the tenor), or a within a specific time frame as listed in the terms and conditions.
Just as you need loan as a business person, the loan officer or bank also needs to issue loans to be able to generate income for their organization. It means that loan is a win–win situation for both parties. But it is important to state that the organization issuing out the loan will always be at an advantage hence the need to go out there to convince businesses to access loans; and in most cases, they make it appear that they are hardly making any profit from the loan and they are only doing you a favor.
In case you don’t know it, every business you see out there are all out to make profit since they are not registered as charity organizations and loan issuing organizations are not left out. They need money to pay their employees and keep the business running. Here are 10 harsh truths a loan officer won’t tell you about taking a business loan.
10 Harsh Truths a Loan Officer Won’t Tell You About Taking a Business Loan
- Issuing Loan to You is More to Their Advantage than Yours
A loan officer will not tell you that issuing you business loan is more to their advantage than yours. Of course, they will make it look like they are there to help you achieve your business dreams and aspirations. The truth remains that one of the major sources of income for banks and other loan issuing organizations is loans.
The more loans they issue out, the more interest (income) that they generate. Since issuing out loans is one of the reasons why they are in business, it means that if they don’t have who to give loans, they may likely run out of capital.
2.You can Truly Forfeit Your Collateral if You Default
Of course no loan officer will emphasize that you can actually forfeit your collateral if you default in paying back the business loans you collected. This fact won’t really surface especially if they are the one who truly wants you to collect business loan from them.
Besides, loan officers will only request for collateral that are of more value than the loan you are sourcing for. Indeed, you can actually forfeit your collateral to the bank when you go against the terms and condition of accessing the business loan.
3. You can Be Handed Over to Police or Taken to Court if the Relation Goes Bad
It is not a crime to default from paying back the business loan you collected as long as you are in contact with the bank or the loan issuing organization and you have made plans to pay back the loan as soon as possible. This is only applicable when your loan goes bad and you are struggling to generate income. If you choose to avoid the loan officer and cut off communication with them, they have the right to get the police involved and also take you to court.
This is why it is better to always keep in touch with your loan officer and the bank if you know you are not able to pay back the loan as agreed. Of course, you are going to pay more interest when you resume paying back the loan, but it is still better than being arrested and embarrassed by the police.
- Your Business Can Be Taken Over from You if You Don’t Pay Back the Loan
In case you don’t know, if you default from paying back your business loan as at when due and also go against the terms and condition of accessing the loan, your business can actually be taken over from you. This is one harsh truth that a loan officer will not want you to know. The fact that you got the loan to start the business means that you are not entirely the owner of the business until you fully pay back the loan.
- There is an Interest You Will Pay for Defaulting (Default Interest Rate)
Another harsh truth that your loan officer will not tell you is that there is an interest rate you will pay if you default in paying back a business loan as at when due. It is a process put in place to remind loan collectors that there is a price to pay if they default. In most cases, it is not brought to the forefront when negotiating for loans especially if they know that you have the capacity to pay back the loan.
- Clearing Off Your Loan Earlier Than Expected Attracts Penalty (Prepayment Penalty)
Usually, it is expected that when you pay back your loan before the tenor, you will get rewarded or save interest and money, but this is not the case. The truth is that if you go through the terms and conditions of collecting the loan, you will realize that you can be penalized for clearing off you loan earlier than planned without paying the full interest of the loan as agreed from the onset.
This is one harsh truth that a loan officer or a bank will not want you to know when you come to them for loan. This why it is advisable to spread the payment of your loan to a period as agreed with the bank even if you have the whole money to pay back the loan before the expiration of the tenor.
- You Can Actually Get a Business Loan with Variable Rate
Another harsh truth that a loan officer would not want you to know is the fact that you can actually get a loan with variable rate. A variable-rate business loan is just the opposite of a fixed-rate business loan. The interest charged on the loan — and your monthly payments — can rise and fall with market fluctuations.
You just have to scrutinize the terms and condition in front of you before signing the business loan document. Some business men or women in desperation of getting a business loan fall victim of these terms and conditions when they are desperate to collect business loans from banks or loan issuing organizations.
- There are Always Hidden Charges
Have you ever signed a contract and later realized that you were not informed of some hidden charges? There are always hidden charges when you get business loans from a bank and this is one harsh truth that a loan issuing officer will never tell you.
The truth is that if you are fully aware of the deductions that you are expected to pay during the lifespan of the business loan that you collected, there is a possibility of your backing out and sourcing for other alternatives. Even if the hidden charges may not be huge, but it sure has a way to get you angry when you discover that you are paying money that you did not budget for.
- Right to Sufficient Notice
Another harsh truth that a loan officer won’t want you to know is that you should be given sufficient notice before any action would be taken against you when you default in the payment plan of your business loan. It is a fact that a default does not strip you off your rights or make you a criminal without any court verdict.
The law makes it mandatory for banks and any loan issuing organization to follow due process and give you time to repay your business loan before repossessing your assets to realize the arrears. During the notice period, you can make your representation and plea to the authorized officer and put forth your protests to the repossession notice.
- Right to Humane Treatment
Lastly, one harsh truth that a loan officer won’t want you to know is that you have the right to humane treatment even if you default and go against the terms and conditions of the business loan you collected. In the United States of America and in all countries of the world, banks are regulated entities that cannot act like the usual moneylenders when trying to collect back their loan or the installment payments as agreed by both parties.
In conclusion, banks and other loan issuing houses know that businesses sometime go bad, and they will once in a while encounter stubborn business people who would not want to pay back their business loans as at when due, hence the name ‘bad debts’. Besides, there are professionals who are experts in reclaiming bad debts and they get rewarded for it. No loan officer would ever want you to know these obvious truths.