I Want to Take a Logbook Loan to Support My Business. Should I?

A logbook loan may present an appealing alternative if you're seeking a business financing solution that offers convenience and avoids the lengthy application processes typical of traditional loans. This type of loan allows you to secure funds based on the assessed value of your vehicle. Throughout the loan period, your vehicle temporarily enters joint ownership between you and the lender until you repay the loan plus the interest.

For business owners who need quick cash or have trouble getting a loan from established financial institutions, a logbook loan can be an alternative way to get the necessary capital to support their business endeavors.

But the big question is: Is using a logbook loan a good idea for your business and personal? This article will explore some reasons why logbook loans can be advantageous for business financing and some of their downsides.

Read Also: 6 Reasons Why Kenyans Prefer Logbook Loans During Emergencies 

Why Logbook Loans for Business Makes Sense

Logbook loans present certain advantages that make them viable for entrepreneurs seeking financial support for their businesses. Let's explore why these loans could suit your business needs.

1. They are Accessible and Have a Quick Approval Process

Imagine you run a construction business and lost or damaged your essential tools. To ensure your business continues to operate smoothly, you will need to buy replacement ASAP. If you don’t have cash at hand, you might be forced to consider taking a loan to purchase new equipment.

You can apply for a traditional small business loan, but the whole process to approval can take weeks. The lender will need to review your credit history and carefully examine all your paperwork before approving your loan application. This time frame can’t work for you if you need cash urgently to address your emergencies.

That's where logbook loans for business come in handy. This loan can then be used to cover immediate expenses as you can apply and get approved within 24 hours, depending on the lender. To qualify, your car needs to be free of any existing financial claims, and the loan amount should be less than your car's forced-sale value. Additionally, most lenders don't require a stellar credit history. 

2. The Can Be Ideal for Stocking Up on Inventory 

It's a universal truth that every business, big or small, encounters cash flow challenges from time to time. These challenges often arise when customers delay their payments or when you find yourself running low on cash but need to replenish your inventory.

This is where logbook loans for businesses prove to be a valuable resource. They can allow you to quickly access short-term funds to stock up on inventory to meet customer demand. 

Additionally, you can structure your repayments based on your business's cash flow. This adaptability ensures you have the necessary inventory to meet the surge in demand and allows you to capitalise on a financial opportunity without worrying about long-term debt.

For instance, let's say you run a bookshop or a school supplies store, and it's the back-to-school season. This is a prime time for your business, but you're low on cash to stock up. You can take a logbook loan, buy inventory, sell them, repay the loan, and pocket the profit. This approach offers a form of working capital for your business.

3. They Allow You to Unlock Your Car Value to Expand your Business 

When considering business expansion, many entrepreneurs face the dilemma of raising the necessary capital. This is because the returns on such an investment may not materialise within just a month or two. Therefore, they might consider selling their car, taking on partners, or going through the rigorous process of securing a business loan.  

Logbook loans for businesses can address these concerns. 

First, they have flexible repayment terms, with some lenders offering repayment periods of up to five years. You can negotiate a suitable repayment schedule that allows your business the time it needs to grow and generate the revenue required to repay the loan comfortably.

Second, with logbook loans, there's no need to sell your vehicle to secure funds. Instead, you can leverage the value of your car without giving up ownership. Raising funds this way can allow you to retain 100% equity and control over your business.

Finally, opting for a logbook loan instead of a traditional business loan can safeguard your business's credit history, especially if you plan to seek larger loans for future expansion. 

4. They Can Address Cashflow Problems For Seasonal Small Businesses

Seasonal businesses often face financial challenges during off-peak months. Logbook loans can offer a lifeline during these lean periods. Unlike traditional business loans that may restrict how you use the funds, logbook loans allow you to allocate the funds where needed, provided you have a clear repayment plan. 

Consider a tourism-related business based in a coastal town. During the rainy season, when tourism slows down, these businesses can experience cashflow problems. During such scenarios, a logbook loan can help cover operational costs, such as employee salaries and supplier payments. 

Conversely, during peak seasons, logbook loans can facilitate hiring additional staff and maintenance of tour vehicles to meet increased demand, all without the extended processing time associated with other loan types.

Read Also: How to Protect Yourself When Taking a Logbook Loan 

What are the Downsides for Using a Logbook Loan to Support Your Business?  

Taking out a logbook loan to fund your business is a great way to support your vision. But before considering this loan, you need to understand some potential downsides.

1. You Could Lose Your Car: Logbook loans are secured loans; therefore, the lender can repossess your vehicle if you default on your repayments. This can be detrimental if you need the car to conduct your business. Before signing an agreement, you should ensure that you have a solid plan to meet your obligations and protect your collateral.
2. It Can Be Expensive: Compared to traditional business loans, logbook loans may be easy to obtain, and you might qualify for larger amounts without a credit history. However, they tend to be costly, attracting more fees and higher interest than business loans. 
3. Personal Liability: When taking out a logbook loan for businesses, you may have to use their credit to guarantee the loan instead of your business’s. If the business has problems repaying the loan, it will show on your credit report, which could hurt your ability to obtain loans in the future.
4. Cashflow Problems: Short-term logbook loans tend to have higher repayments. Your business will need to generate enough revenue to meet the minimal monthly repayments and other obligations like paying rent and salaries. If you don’t, you might develop cashflow issues that can force you into taking more debt in order to stay aflolat. 

Read Also: Things to Look Out for When Comparing Logbook Loans 

Factors to Consider Before Taking a Logbook Loan to Support Your Business

Taking out a logbook loan to support your business can provide quick access to funds. However, before embarking on this path, it's vital to consider various factors that can impact your business's and personal financial health.

1. Deposit Turnaround Time: Logbook loans can be appealing if you need cash quickly. However, if time isn't a pressing concern, consider exploring alternative options like traditional business loans or unsecured personal loans. Compare these options with logbook loans to choose the one that best suits your needs.

2. Interest Rates and APR: When borrowing for any purpose, the loan's cost is a crucial factor to keep in mind. Before using a logbook loan to support your business, ensure the cost justifies the investment. If your goal is to generate profit, calculate the interest and other fees the lender will charge to confirm that your business will remain financially viable.

3. Repayment Terms: Logbook loans typically come with shorter repayment periods. Calculate your monthly payments and make sure that, even during challenging times, you can meet these payments on schedule. Consider negotiating with your lender to secure a repayment term that aligns with your business goals.

4. Penalties and Fees: Even seemingly attractive loans can have costly fees. Pay close attention to processing fees and potential prepayment penalties. Consider utilising Money254's free logbook loan comparison tool to compare lenders based on interest rates, processing fees, and upfront vehicle appraisal costs.

Read Also: 6 Deadly Sins When Taking a Logbook Loan

WRAPPING UP

Logbook loans may provide the required funds if you need to raise money quickly to support your business. However, you should approach them wisely. Make sure you have a strong repayment plan in place before you sign a contract. This will help you avoid car repossession, protect your credit score, and prevent you from getting trapped in a cycle of debt. 

Finally, you should compare other business financing options before deciding on a logbook loan. Depending on your needs and business objectives, you can consider using your savings, obtaining a personal or business loan, or bringing in business partners through equity sales.