Starting a business in this precarious economy is tricky. Even more complicated is to figure out how to keep the business afloat and what are the associated financial concerns. This is where a business loan comes into use and saves the day.
A business loan can be a big resource for investment, but it can be complicated to steer the numerous number of loan options accessible to small business owners. SBA loans, conventional bank loans, online working capital loans, and peer-to-peer loans are just a small number of the types of loans that small businesses are qualified for.
Let us talk about the various do’s and don’ts that you must gauge cautiously while you are on the hunt for a business loan, best suited for your company.
Limit yourself with the number of loans you are applying for
The sensible approach is to first find out diverse lenders’ criterion and apply purposefully for the two or three best options that you’re most expected to qualify for.
Understanding how much the loan costs
Lenders portray the cost of a loan in dissimilar ways. Some might tell you the interest rate on the loan, while others about the total cash you have to pay back. This makes it difficult to weigh the pros and cons of each option.
The best option is to ask the lender about the Annual Percentage Rate (APR).
This is the complete cost of a loan over one fiscal year, incorporating the fees. The APR of a bank or SBA loan is usually around the range of six to nine percent.
Be cautious about prior payment fees
A prepayment fine is an amount that a lender charges if you reimburse the loan ahead of the due date. By performing this deed, you decrease the amount of interest that the lender attains on the loan, so therefore they charge a price.
The fine is habitually two or three percent of the remaining balance of the loan. This is usually in accordance with the majority of the lenders.
Understanding what happens if the applicant is unable to pay off the loan
Most lenders do not give a loan to a company (particularly a startup) except if it’s protected by collateral or a special assurance. This should be taken with utmost seriousness. Priceless personal and business possessions may be at stake if you are unable to pay back the loan.
The Bottom Line
While this gives you a complete checklist of all the do’s and don’ts to be wary of while applying for a business loan, it is imperative for every applicant to read the fine print before signing any sort of agreement.