How to Pick the Right Small Business Loan
Many small businesses have a hard time securing business loans mainly due to strict lending regulations by banks. However, securing outside financial help is often critical for starting or expanding a business, and even covering day-to-day expenses like salaries and inventory.
While it can be a challenge to find, apply for and get approved for a small business loan, it’s best to always be prepared. There are several things you need to consider when selecting a loan for your small business venture.
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The amount of loan you’re looking for will affect the terms of repayment, interest rates as well as other relevant conditions attached to your loan. If you’re looking for a huge amount of money, you might be required to make a deposit before you’re given the loan. Carefully think over the amount of money you intend to borrow. Never underestimate the amount you’ll need because it’ll be even harder to get another loan if you find out that you need extra funds.
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Length of repayment
The duration of your repayment schedule will be based on the amount you borrow. Small loans will often be paid back within the first couple of years, while bigger loans might take 15 years to be fully repaid. The longer the duration of your loan repayment schedule, the lower the amount you’ll pay in regular installments. However, if your repayment schedule spans a number of years, you could incur ongoing fees or added interest rates, which can make your loan more expensive in the long run.
Fixed or variable
Fixed loans tie you to a fixed interest rate and specific repayment plan. In contrast, flexible loans have fixed or variable interest rates along with a repayment schedule that can be personalized to meet your business’s needs. Although fixed loans can offer you the luxury of knowing the exact amount you’ll need to repay, flexible loans are usually the more economical option. Before choosing between a fixed loan and a flexible loan, consider the pros and cons of each type of loan.
Choosing a lender that’s well known to the authorities is the best way to stay away from scams and deceitful marketing tactics. Whatever lender you choose, whether it’s a bank, building society or any other lender, carefully go through their credentials before you submit your application.
Partners and sole proprietors are personally responsible for repaying a business loan, whether the business succeeds or fails. It’s vital to consider the financial and legal implications of assuming personal liability for a loan, because it could result in loss of property, personal possessions or assets.
Compare different loans
Before finally settling on a loan, it’s advisable to compare the different terms and repayment schedules of different lenders. Take as much time as you need to ensure you’ve gone for the best deal that fits your situation and needs.