Guide to Choosing the Best Small Business Loan
Many small businesses find it quite difficult to secure a business loan, mainly because of tight lending rules by banks. But getting financial help from outside is often crucial for growing or starting a business, or even paying for regular expenses like payroll and inventory.
Although it can be quite difficult to choose, apply for and secure approval for your small business loan, it always pays to be prepared. There are several factors you should take into account when selecting a small business loan for your enterprise.
Amount of loan
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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 mull over the loan amount you plan to borrow. Never underestimate how much you’ll need as it’ll even be harder to secure another loan if you realize that you need more funds.
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Duration 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 your loan repayment schedule lasts, the less money you’ll pay in installments regularly. But if your repayment structure spans several years, you may incur extra interest rates or ongoing expenses, making your loan more expensive in the end.
Fixed or flexible
Fixed loans commit the borrower to a fixed interest rate and certain 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. While fixed loans may give you the comfort of knowing just how much you’ll have to pay back, flexible loans are often the more cost-effective option. Before you decide between fixed and flexible loans, consider the benefits and drawbacks of each loan type.
Choosing a lender that’s well known to the authorities is the best way to stay away from scams and deceitful marketing tactics. Whether you choose a building society, bank or any other lender, carefully assess their credentials before you apply.
Partners and sole proprietors are personally responsible for repaying a business loan, whether the business succeeds or fails. It’s important to think about the legal and financial consequences of assuming personal responsibility for a loan, since it could cause loss of assets, property or personal possessions.
Compare different loans
Before finally choosing your loan, it’s best to compare the repayment plans and terms of various lenders. Take as much time as you need to ensure you’ve gone for the best deal that fits your situation and needs.