Are you looking for a more reliable way of getting some extra cash for your business? Think about small business loans. But already you know what we all know; whether you’re using the loan to fuel a new initiative or cover your startup costs, getting a small business loan can be both exciting and nerve-wracking.
You need to be very careful when applying for a loan. Without caution, you might find yourself struggling to pay back a loan that has unfavorable terms. And the situation might worsen when you’re told by the lender that you’ll be held personally liable for the debt. That’s why it’s imperative you know all there is to know about the type of loan you’re applying for, and more importantly, how you’re getting it.
All you need to know about small business loans
When you’re out there hopping for a small business loan, put into consideration the following:
1. The interest rates
You’ve obviously heard about the compound interest, right? The one thing that will definitely have an exponential influence on the funds that you eventually owe will be the interest rate. Let’s take an example of a small business owner who decided to borrow a small business loan of 100,000 dollars. He’s told that the interest rate is 4 percent. He later on leans that the rate was being compounded annually, and that means he’ll have to pay 21,665 dollars in interest. If you do your math right, you’ll realize that this is actually more than 16,000 dollars which he could have paid in four individual years.
2. Terms of the loan
We’re talking about the duration taken to pay off the loan. This will depend on whether you have a steady flow of income to help you keep up with the monthly payments, or not. If you can’t keep up with the monthly payments, you should think about a long-term loan. However, there’s a risk involved. Unless you pay off the principle ahead of schedule, you’ll have to pay more interest. If you need any more information, Thinking Capital may be able to provide you with further insights and resources.
3. The small business loan conditions
For example, is there a minimum amount that you have to pay each month? Are there penalties in case you make a late payment? What happens if you want to pay off the debt early? And in some cases, if you’re working with a private lender, the conditions might also dictate how you use the funds.
4. The financial institution
You’ll want to work with an institution that will give you the best deal. A small lender might be more helpful as opposed to an established multinational lending corporation that only wants to deal with prominent clients.
5. The qualifications
Well, it’s not a small business loan quality but it will determine whether the lender wants to work with you or not. No bank will be willing to lend its funds to an entity with a tenuous ability to pay the small business loan back, or one that has an unproven track record.
6. Small business loan subtypes
Many people are familiar with the ‘conventional’ loan which works like a mortgage forgetting we have other loan subtypes. A perfect example is the ‘balloon loan’. With this subtype, you get to only pay the interest throughout the loan duration, and then pay the full principal amount at the end of the period.
7. The amount you need
Finally don’t apply for a large amount. This is a mistake that most small businesses do and because of that, their applications get rejected.