What are the drawbacks of using bank loans (and mortgages) to raise finance
- Assets will be taken if the business fails to repay (need limited liability)
- Time consuming; a business would need to produce a detailed business plan to gain a bank loan
- No flexibility as the business has to keep to the initial repayment terms; even if the business does not use all the money, interest must be paid on the full loan amount
- Failure to make repayments can result in a worse credit score, limiting the possibilities of getting loans in the future
- Not guaranteed to get a loan from the bank
- Bank may ask for a collateral, which increases costs; the bank can sell this if the business fails to repay the loan (in a mortgage, the house is the collateral)