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Opinion holder entrepreneur Contributors are their own.
If you need business funding, you may be tempted to take out the first business loan offered. However, there are a few things you should check before signing the dotted line.
1. Appropriate loan type
As with personal finance, business loans come in several different forms, so you should choose the one that best suits your business needs.
- Traditional loan: These are the business equivalents of secured or unsecured personal loans. You borrow a fixed amount and set a repayment schedule with a fixed interest rate.
- Credit limit: A line of credit provides a set amount of funding, but does not have to receive and pay interest on the full amount. You can call the funds when you need them and you only pay interest on the amount borrowed.
- Equipment financing: If you need funds to purchase equipment, this type of business loan is designed for your needs. Purchased equipment serves as collateral for the loan, so you usually have access to more flexible terms.
- SBA loan: An SBA or Small Business Administration loan is an option if you are struggling to qualify for a bank business loan. Financing criteria are more flexible and may be a better choice for new businesses.
Before agreeing to a business loan offer, it is well worth evaluating other types of business loans to ensure that the loan is the best fit for your business.
2. Manageable loan repayments
Before signing the loan agreement, you should have the opportunity to review the details of the loan repayment requirements. You should carefully consider whether you are comfortable making monthly payments within your budget, not just now, but for the life of the loan.
If you have concerns that you may have difficulty making payments or struggle to meet your payment deadlines, we recommend looking for another loan product. Non-payment or late payment not only creates additional financial stress, but can also have a significant impact on your credit.
RELATED: 7 Different Loans You Can Get As A Business Owner
3. Reasonable loan fees
This continues from the previous point, but you should also be very aware of the fees incurred on new business loans. In addition to paying interest, there may be origination and processing fees. These must be added to the loan principal or paid in advance. Ideally, your new business loan will have little or no such fees.
You should also be aware of any fees that may accrue during the life of the loan. For example, you don’t want to be charged a large late fee if your bank makes a mistake. You also need to be aware of early repayment fees. If your business’ financial situation changes and you want to pay off the loan, you don’t need a loan that charges hefty early repayment fees.
4. Good lender reputation
Unfortunately, not all lenders on the market offer the same level of service. The adage “too good” certainly applies here. Therefore, it is important to research the lender’s reputation and watch out for some red flags. These include:
- No credit check required: If the lender has minimum credit score requirements or does not require credit score checks through soft or hard pull referrals.
- No verifiable credentials: If the lender does not have a professional website and does not provide physical address details.
- Lack of fee transparency: Lenders need to be very clear about their loan fee structure.
- Hard selling: A salesperson trying to pressure you into accepting a business loan offer immediately without providing information and time to consider it.
5. Correct loan amount
It may be tempting to get the largest business loan you can get approved for, but this may not be a good idea. Not a choice.
Carefully consider what funds you need and how you will use them to ensure you get the right amount of loan.
6. Attractive interest rates
As with any form of finance, interest rates determine the cost of a business loan. The lender uses various criteria to determine his risk profile and thus the interest rate. However, these standards vary from lender to lender, with some being stricter and others being more flexible.
If you have a brand new company you are unlikely to get the best rate unless you have excellent credit yourself. It is still important to make sure that
However, if the loan has minimal fees or other benefits, you may be prepared to pay a slightly higher interest rate. So don’t look at interest rate comparisons without some context.
Related: 3 Types of Business Financing and What Every Entrepreneur Should Know
7. Reasonable funding time
Even if you don’t need the money urgently, you’ll still want to implement your plan as soon as possible. So check the funding times that each lender offers for business loans. After I submit my application and get approval, when can I receive the funds in my bank account?
Some lenders can release funds in 24 hours or days, while others are slower. If you have to wait weeks or months for your funds to arrive, you may want to consider other options.
8. Extensive customer support
Finally, it’s worth looking at the level of customer support that potential lenders offer. If you have questions or concerns about your loan, are their support teams readily available? Some lenders have a phone helpline. We have, but other lenders rely solely on email or chat.
It’s a good idea to read some reviews of the lender to see if there are any red flags regarding long wait times on the phone, slow response to emails, or other customer support issues before becoming a customer. To do.
Conclusion
Getting the right business loan for your needs takes time comparing different aspects and lenders. Following the factors above and trying to maximize each one will save you money, time, and financial stress.
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