Repayment Holidays On Business Loans – Pros And Cons
If you are a business owner requiring a business loan then you may be interested to read that there are a number of lenders that offer a repayment holiday for a few months typically at the start of the borrowing. This may be something that could appeal to some applicants so let’s have a look at some of the pros and cons of this.
Potential advantages of a repayment holiday
• As the business will not need to make any capital repayments to the loan for up to say 3 to 6 months then such an arrangement could aid cash flow. This is something that may be of particular benefit to a business that is just starting up when liquid funds are sometimes in short supply.
• The funds that were going to be used to cover the loan repayments could be used for some other purpose such as towards paying for a marketing campaign or purchasing additional stock. This could increase the business’s turnover and its profitability and that is something that all business owners would no doubt welcome.
Potential disadvantages of a repayment holiday
• Interest still accrues from when the business loan is set up and this will obviously still need to be repaid.
• Depending upon how the business loan is structured this could mean that when the monthly repayments to the loan do start they could be higher than if a repayment holiday was not taken to take into account the accrued interest during the repayment holiday or it could mean that the loan is repayable over a longer period with this resulting in the total amount of interest payable throughout the term of the loan being greater.
If you are considering taking a repayment holiday on a business loan then you may feel it prudent to take some advice in this respect so that you are fully aware of all the pros and cons of such an option and decide if it is viable from a commercial point of view.