Before applying for small business loans, know that there are a few important things to consider first. This ensures that you pick the right type of loan that will benefit your business.
Opening and maintaining a business these days has become more difficult and complicated than it used to be. After all, more things can influence its growth. That’s why business owners have to do more than they used to in order to be successful.
But despite their efforts, many businesses end up not growing. What’s even worse is that most startups and small businesses close down a year or two after they’ve been launched.
The biggest reason for a business failing is, of course, a lack of access to adequate funds.
After all, if you can’t get sufficient funds when you need them, you won’t be able to cater to your business’s needs. You also won’t be able to boost your operating capital and ensure continued growth.
That’s why people turn to small business loans to finance their operations and avoid closing down.
There are a lot of financing options available to businesses these days, with each catering to a different type of need. But you’ll only know the perfect loan for you if you know what exactly to look out for.
And in this article, we’ll talk about the five key factors to consider before applying for any type of small business loan.
The 5 Factors
Factor #1 – Loan Amount
Of course, before you take out a loan, you must know exactly how much you need to borrow. And coming up with a figure requires you to identify the need you want to meet in your business.
Lending institutions often have several loan options for small businesses. And each loan type is tailored to different needs and is structured in a different way. But sometimes, they have to be utilised in a manner that’s already stipulated by the lender. It is also important to know that these loans have varying borrowable amounts and interest rates.
So, don’t take out a loan unless you have a good idea of how much you need to borrow. Only borrow the exact amount of money that you need to avoid getting swamped with the repayments, not to mention being burdened by the interest.
Factor #2 – Interest Rates
As soon as you apply for a business loan, interest payments will become a major part of your monthly outflows until you’re done repaying all the money.
Know that interest rates could be fixed, variable, or a combination of both. You must know the exact interest rate your business can cope with. This way, you can avoid jeopardizing your profits with high-interest loan repayments and other loan fees.
Keep in mind that higher loan amounts are often accompanied by higher interest rates. So, while borrowing large amounts of money might be tempting, consider if your business can handle the monthly repayments that come with them.
Balance the pros and cons of the loan vis-a-vis the interest rate. If care is not taken, these repayments could cause your business to struggle or even close down eventually.
Factor #3 – Duration of Repayments
Apart from having varying interest rates, lending institutions also offer varying repayment periods. And oftentimes, these two go hand-in-hand.
Usually, you’ll be offered different durations to repay a loan – it can be six months, a year, etc. And each duration will have its own interest rate. Take note of these durations and their interest rates and be sure that you are capable of making the payments.
After picking the exact duration you need to repay the loan, make sure that you take out the loan only during the period that is specified.
And finally, always ensure that you pay back your loans within the approved time frame. This way, you’ll avoid unnecessary interest outflows. It’ll also stop your business from doling out more money than necessary for loan repayments.
Factor #4 – Processing Time
Small business loans have different processing times based on the type of loan and who the lender is. So, if you need money urgently, you need to know which loan to apply for.
Also, knowing a loan’s average processing time can give you an idea about when to apply to ensure you get the money when you need it. But you can also consult with relevant financial entities to speed up the processing period, especially if you need the money urgently.
You can also cut down on a loan’s processing time if you know all the documents required for it and prepare them beforehand.
Factor #5 – Penalties
No one wants to default on loan repayments. However, situations could arise that can make you miss a payment period. As you know, most lenders have penalties in place should this happen.
Missing a payment could lead to heavier repayments for some lenders. For others, they may increase the interest rates on future repayments. Meanwhile, there are also lenders who may require that you pay punitive fees.
So, watch out for the penalty clauses in each loan.
Although you don’t wish to default on the loan, ensure that you can handle the penalty charges should it happen. Do note that you can also negotiate with the lender to make the penalties bearable for your business.
Get The Perfect Loan For Your Business
Access to funds is a crucial requirement for the growth of all businesses. And one way to get money for your business at the appropriate time is via small business loans.
But before settling down on a loan, take note of the five factors mentioned in this article. This goes a long way in helping you select the perfect loan for your business.
And if you need further assistance, Unsecured Finance Australia is here to help. Apply online and you can receive your approval within 24 hours.
Find out more by taking a look at our unsecured business loans.
