2. Bank loan requires collateral security
Although it is a precaution to ensure repayment of the loan, a collateral security can harm your business. The risk of losing the security is the first reason. If you take a loan and give your car as the security, you stand to lose the car in case you default the loan. In case the business fails and you are unable to pay the loan, it becomes a case of double tragedy for you that is losing both your business and your car. Further, the banks regulation is that the security becomes the property of the bank during the duration you are paying the loan. This limits the use of your personal property so that instead of your car being an asset to your company, it becomes a liability. A collateral security is an additional cost of bank loans that small business fail to realize also known as opportunity cost.