3 Things to Ask Yourself When Getting a Business Loan
Business loans are great for getting the funds you need to either start a business or to expand a venture that you already have. Basically, this means borrowing a sum of money from a lender and paying them back the value of the loan plus interest over a period of time. Business loans can be very helpful to move your business in the right direction, however you should be careful to jump into a deal especially because it involves your finances. Before you go out and get a loan, consider these three factors to get the best deal.
1. What’s your business’s current status? – How is your business currently performing? Do you make a sufficient and consistent profit? Figuring out whether you’d be able to pay your loan back on time can be done by determining how you’re doing currently. However your immediate future isn’t always good enough to ensure your ability to make timely payments. It can take years before your loan is fully paid, and if you intend to pay it back using chunks of your profit, you need to make sure your business will remain stable for many years to come.
2. How do you intend to spend your loan? – Some business loans are used to establish a brand new venture, while others are used to expand existing ones. Both of these reasons are viable for lenders and are approved more often than not. But if you plan to use your loan to save you from debt or to help you bridge a financial gap in your business plan, you might want to think twice. You should know better than to save your dying business by taking in a debt. After all, if a lender sees that you don’t make enough money in the first place or if they discover that your business is struggling to make a profit, they will decline your application all together.
3. What loan term do you think is best? – Lots of people tend to think that the longer the loan term, the better the deal. But while a smaller monthly amortization might seem easier on the pocket, it’s not always cheaper. Longer loan terms mean higher interest rates. A larger interest means you pay more extra fees on top of your original loan amount. As a general rule, you should pay a monthly amortization that maximizes what you can afford to shorten the loan term.