You have fulfilled your dream of becoming an entrepreneur, successfully starting a small business that has enjoyed some degree of success. However, even the most successful of businesses need assistance every now and then for things such as new inventory, staff, office supplies and equipment, and expansion.
Luckily, there are government bodies and private agencies that offer loans to small businesses. The competition for these loans can be fierce with many businesses applying for them. Even if you are approved to receive one, there are certain factors that you need to take into account when seeking a small business loan. Being cognizant of them will ensure you get what you need to be successful.
1. Interest rate
The interest rate that you agree to on your small business loan is obviously a major determinant on whether or not you go through with obtain it. You want the rate to be as low as possible or else a major portion of your payments will go towards interest and not the principal amount.
When you are considering a small business loan, shop around and get rates from different lenders. If an institution wants your business, they will be able to give you a favourable interest rate. Also consider whether you want a fixed or variable rate loan. A fixed rate will be the same interest amount for the duration of the loan whereas a variable rate will change depending on market values. To be safe and because you cannot predict future profits, it may be best to go with a fixed interest rate.
2. Amount needed
The amount of money you need to borrow is crucial and you need to be accurate when applying for a small business loan. Requesting too much may cause the lender to decline your application. In the event you are approved you will be on the hook to pay back a large amount that you might not be able to afford. Asking for too little may result in you not being able to purchase everything you need to be successful and your business will suffer.
Before applying for a small business loan, create a record of everything you plan on spending your small business loan on. Also provide estimates on each item and be as accurate as possible. Doing will will ensure you request the correct amount when you go to apply.
3. Lenders
There are many lenders available who are able to provide you with a small business loan at an agreeable interest rate. These include banks and credit unions. However, there are just as many businesses that can provide you with the funding that you need but are unethical and their practices could seriously harm the well-being of your business in the long run. These include cash advance options and private lenders.
Before agreeing to a small business loan with a lender, shop around and get an idea of the reputations of different lenders that can help you. In your situation, it is best to go with a lender that has experience working with small businesses as these institutions know what an entrepreneur needs.
4. Your ability to repay
While you have every intention of repaying the loan that you take out, times for business owners can get tough and sales and profits can be tough to predict. Nonetheless, you still need to repay the whole balance of the loan even during hard times. Therefore, you need to be mindful of whether you can afford the payments.
Before agreeing to a small business loan, you need to be prepared to budget to ensure you can make payments on it. You also need to determine which interest rate and payment plan works for you so you can situate yourself to be able to comply with the terms of the loan. The loan officer you work with will be able to answer all of your questions before signing the agreement. It is at this time you need to confirm your obligations and determine whether you are able to meet them.