It is common practice in business to ask for a loan from investors. It can be a difficult task especially for small business owners who are relatively new and has just started to establish their names in the industry. After considerable planning and you feel that you’re ready to jump into the fray of expanding the business, you might be tempted by offers from lending investors who are offering zero percent financing. The idea is simple. With the zero percent financing option, your agreement with lenders basically states that the lender or investor would not charge any interest. Tempting but is it really all that it promises to be?
According to Kate Lister’s article, Is Zero Percent Financing a Free Lunch?, it is just bait for lenders and investors to draw in entrepreneurs who needs additional funding for business expansion. Zero financing agreements are usually just an introductory offer and is just temporary. If you think about it, with this method of financing, the lender or investor would not generate any profit from your loan since they are not charging you any interest. This method is just a marketing strategy. For a certain time frame, your loan would not accrue interest but when the time frame expires, you may be subjected to a higher interest rate. Small business owners are always on the lookout for great deals to help their businesses grow and for a certain time zero percent financing may just be the boost they need to keep up with the times. As an entrepreneur, this is one of the risks you feel that you need to take but you have to make an educated decision about it. You need to read and understand your financing agreement carefully if you opt to take advantage of the zero percent financing option. Just always remember that if a deal sounds too good to be true, it probably is.