8 Things Entrepreneurs Should Look for When Getting a Business Loan

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If you need funding for your company, it can be very tempting to apply for the first business loan offer. However, there are a number of things you should look for before signing on the dotted line.

1. The right type of loan

As with personal finance, there are many different types of business loans, so you should choose the one that best suits your company’s needs.

  • Traditional loans: These are the commercial equivalent of a personal loan that can be secured or unsecured. You will borrow a certain amount and have a certain repayment schedule with a fixed interest rate.
  • Credit line: A line of credit provides you with a set amount, but you do not need to receive and pay interest on the entire amount. You can call on the funds you need when you need them, and you only pay interest on the amounts you borrow.
  • Equipment financing: If you need funds to buy equipment, this type of business loan is designed to suit your needs. The equipment you buy acts as collateral for the loan, so you can usually access more flexible terms.
  • SBA loan: SBA or Small Business Administration loans are an option if you’re having trouble qualifying for a bank business loan. Lending criteria are more flexible, which can be a more favorable choice for new companies.

Before you agree to a business loan offer, it’s worth evaluating other types of business loans to confirm that a loan is right for your company.

2. Manageable loan repayments

Before signing the loan agreement, you should have an opportunity to review the details of the loan repayment terms. You should think carefully about whether you can easily fit the monthly payment into your budget, not only now but over the life of the loan.

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If you are concerned that payments may be difficult, or that you may have trouble meeting payment deadlines, you may be better off looking for another loan product. Missed or late payments can not only cause more financial stress, but can also have a huge impact on your credit.

Related: 7 Different Loans You Can Get As A Business Owner

3. Reasonable loan fees

This follows from the previous point, but you should also be fully aware of the costs you will incur with your new business loan. In addition to paying interest, you may also incur origination fees and processing fees. These are added to your loan principal or you have to pay them upfront. Ideally, your new business loan will have little or no fees.

You should also be aware of the costs that you may incur during the term of the loan. For example, if there’s a disruption at the bank, you don’t want to get stung with a huge late fee. It’s also a good idea to watch out for early repayment fees. If your business finances change and you need to pay off the loan, you don’t want a loan that imposes a hefty early repayment fee.

4. Good creditor reputation

Unfortunately, not all lenders in the market offer the same level of service, in fact, some of them can be downright dangerous. The saying “too good to be true” definitely applies here. Therefore, it is vital to check the reputation of the lender and watch out for some red flags. This includes:

  • No credit check required: If a lender meets minimum credit score requirements or does not need to check your credit score with a soft inquiry or hard pull.
  • There are no verifiable credentials: If the lender does not have a professional website and does not provide physical address details.
  • Lack of transparency of costs: Lenders should be very clear about their loan fee structure, so you are fully aware of the cost of financing options.
  • Selling under pressure: If the sales representative is trying to pressure you into immediately accepting a business loan offer without giving you the information and time to read it.
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5. Correct loan amount

While it may be tempting to get the biggest business loan you can get approved for, it’s probably not a good idea. Similarly, if the loan offer does not cover your immediate financial needs, it is not the right choice.

Think carefully about what funds you need and how you’ll use them, so you can be sure you’re getting the right loan amount.

6. Attractive interest rate

As with any form of financing, your interest rate determines the cost of your business loan. Lenders use different criteria to determine your risk profile and therefore your rate. However, these criteria vary from lender to lender, some lenders are stricter and some lenders are more flexible.

If you have a brand new company, you probably won’t get the best rates unless you have excellent credit yourself. But, it’s still important to compare rates to make sure you’re getting the lowest possible rate for your company.

However, you may be willing to pay a slightly higher interest rate if there are minimum fees or other loan benefits. So, don’t look at interest rate comparisons without context.

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Related: 3 Different Types of Business Financing and What Entrepreneurs Need to Know

7. Reasonable budget time

While you may not have an immediate need for funding, you still probably want to get your plans up and running as soon as possible. So, check the financing times that each lender offers for their business loans. After submitting the application and receiving confirmation, when can you expect to receive the funds in your bank account?

Some lenders can release funds in 24 hours or just a few days, but other lenders are slower. If you have to wait weeks or months to receive your funds, it’s a good idea to look at alternatives.

8. Strong customer support

Finally, it’s worth checking the levels of customer support offered by your potential lenders. Can you speak to the support team quickly if you have questions or queries about your loan? Some lenders have telephone helplines, while others rely only on email or chat. Therefore, you should be comfortable with customer support options.

It’s worth reading some of the lender’s reviews to see if there are any long call waiting times, slow responses to emails or other customer support issues before you become a customer.

bottom line

Getting the right business loan for your needs requires some time to compare different aspects and lenders. When you follow the factors above and make sure you maximize each of them, you can save money, time, and financial stress.


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