For many small business owners, there comes a time in your life when you will need to take out a business loan. In doing this, you will need to make sound decisions when choosing the loan that you wish to take out. No matter the economy, these elements are standard in almost all countries in the world.
- The first and most important thing that you need to take into account is the interest rate. How much will you be paying back every month, how much will you eventually have paid compared to what you borrowed, and can your business afford it? If interest rates are high, you might find that your business is struggling to pay the loan back, or even completely not able to. If you cannot work out what a fair interest rate will be, seek the advice of someone who understands finance.
- Think about the loan approval process. Many financial institutions will require you to fill lots of documents and will take weeks to approve them. Others process business loans in hours. How soon do you need the loan? Are you prepared to give a lot of personal and business information to get this loan? If not, eliminate lenders who have these requirements.
- Many loans require security of some kind. Security is what the lender holds in case you default on your business loan. It can vary depending on the financial institution, but it is up to you to decide if you can provide what the bank requires for the loan that you want. Are you ready, for example, to take a business loan against your home? How well is your business doing, so that you are sure that you will pay the loan back and reclaim your security? In other words, be prepared to give as security something that you can part with in case things do not work out as planned.
- You will most likely need a guarantor, a person who vouches for the details that you have provided as well as who can be contacted b y the bank in case you default. A guarantor will also, in many cases, be required to take up payments in case you cannot pay as agreed. This person needs to be thought through carefully. They should be someone who is financially able to handle the obligation should the need arise without going through too much strain.
These are the main things to think about when taking out a business loan, but talk to an advisor so that you understand exactly the climate you are borrowing in and the implications for the future.
About The Author
This article has been brought to you by Michael. Michael is a small business owner and likes to share his knowledge on starting and growing a small business.