When operating a business, you will run into a time where you require an injection of cash. This could be for everything from financing a new piece of equipment to covering any debts that have built up.
As for where to find this additional money, one option is with a payday loan. A payday loan has several advantages. It’s easy to apply. You receive the cash in an instant. This type of loan is also available to those who have bad credit.
Despite these positive points, it’s generally recommended for your business not to get involved with payday loans. Why? Well, here are four reasons:
High interest rates
The biggest reason against payday loans is simple: the high interest rates.
When compared to a credit card, you will tend to be paying at least ten times as much interest with a payday loan. Yet it might not seem like this at first, because the short-term nature of a payday loan disguises the massive APR applied.
You can face expensive fees
Speaking of a payday loan’s short-term aspect, this often acts as a double-edged sword. While it’s good in the sense you can clear off your debt within a short period of time; it can also lead to issues.
As an example, the quick turnaround time might mean you fail to have the time to pay back the loan. This can then lead to fees being added to your loan. As you would expect, these fees are far from cheap – in fact, they could result in effectively doubling the amount of interest you initially needed to pay.
The debt can spiral out of control
For a business, a payday loan might seem innocuous enough. You generally cannot borrow too much money with this type of financing and payments need to be made relatively quickly. However, it can be the starting point for a life of debt misery.
For instance, you might hit a debt cycle where you continually borrow payday loans to pay off the previous one, and so on. If you remain on this path, the debt can swallow you and your business up.
At some point, a debt collection agency will likely get involved, and you could ultimately end up being sued. While you can receive help with debt lawsuits from a top firm, it’s something you want to avoid – especially for the sake of your business.
There are better options available
When factoring in the high interest rates and the possibility of costly fees, it’s fair to say payday loans are not among the best financing options on offer.
With that said, you might have a poor credit rating that limits the choices you can utilize. In this case, why not see if you can gain assistance with a personal loan from a family member or close friend? If you’re going with a payday loan in the first place, you don’t require a large sum of money. This makes it viable to get the money from someone you know, and on much more favorable terms.