There are a lot of loan and financing options available for startup businesses—but how can business owners know what kind of loan will suit their small business’ needs? My Business discusses some guidelines for choosing the right small business loan for your business.
Knowing what kind of loan to get ensures that small business owners will be able to achieve their business goals.
However, when considering business loan options, business owners must take into account the following factors:
- Loan amount
- Interest rates
- Duration of loan repayments
- Processing time
Deciding on a loan amount goes hand-in-hand with determining the purpose of the said business loan.
A lot of lending companies have an array of loan options for small business owners, each loan option tailored specifically for a particular use. These loans also have varying allowable borrowing amounts and accompanying interest liabilities which business owners need to consider.
Business owners should take care to borrow only the exact amount needed to prevent the business from getting swamped with loan repayments. This ensures that the loan is utilised only for its outlined purpose.
Once business owners apply for a business loan, interest rates become a major part of their monthly outflows until the loan gets fully repaid. Knowing the exact interest rate percentage that the business can pay off can help businesses avoid jeopardising the business’ profits with high-interest charges and fees.
Borrowers must also keep in mind that higher loan amounts mean higher interest rates. While larger loans can be very tempting for small businesses, consider whether the business is able to consistently repay these loans no matter how high the interest rates may be—preventing the possibility of the business struggling to pay off the loan’s high interest rates.
Duration of loan repayments
Startup business lenders have varying durations of loan repayments with varying interest rates. The duration of loan repayments and its accompanying interest rates must also be considered by business owners when choosing the right business loan.
After determining the exact duration needed for the business to repay the loan, business owners must make sure to take out the loan only during the specified duration.
Business owners should also make sure to pay back their loans on time. This prevents any unnecessary interest outflow and stops the business from shelling out more money to repay the loans and its interest rates.
When applying for a business loan, business owners should always assess if the business loan they’re applying for is urgent or otherwise. Small business loans have varying processing times that depends on the loan type and the lender who will be approving the loan.
Business owners are advised to consult with relevant financial figures in order for the loan processing to be sped up, depending on the urgency of the loan.
It is important to also obtain a list of all the documents needed to apply for a loan to further cut down processing time. Make sure that these documents are on-hand before applying for the loan to prevent further delays.
If the loan gets approved in the shortest amount of time possible, this translates to more opportunities for the business to grow.
While it is ideal for any kind of business to repay loans at the quickest duration possible, there might be unavoidable circumstances that make it impossible for the business to repay loans on time or at least for one payment period. This is why business owners should consider the penalties and charges that come with every business loan.
Watch out for built-in penalty clauses that may make it harder for businesses to address late payments due to the sheer amount needed to pay off in lieu of the missed payment period.
If this is the case for a particular loan, this means that missing a deadline might lead to heavier repayments for the business. Business owners must look out for these clauses and if possible, negotiate with loan agents in order to make the penalties bearable for the business.