Statistics show that about fifty-six percent of small businesses seek a loan for various reasons, which could range from expansion to equipment purchase.
This means a lot of small business needs a form of financing to support or grow their businesses. One would think then that a need that runs across several businesses should be one readily understood, but sadly, that isn’t the case.
A number of small businesses still chose bad loan deals that they end up defaulting on its payment.
Below is the ultimate guide to choosing the best loan for your small business;
1. Understand the capital estimate: It would be a vegetable decision if you as a business owner approach a bank or an alternative lender without knowledge of what capital your business would need. Inadequate knowledge of the required capital presents you as irresponsible and a bad businessperson. Sort out the capital estimate, before approaching a lender or a bank for a loan.
2. Interest rate: interest rates are important factors to consider when considering a loan for your small business. It is best to compare interest rates between various loan options before settling on one. In some cases, however, there are variable interest rates, and there is no way to compare such rates. In this case, it comes down to how comfortable you are with such rates.
3. Figure out the total amount owed: The total amount owed will include the entire money borrowed, including interest and fees on the loan. The ideal loan would be the one with the least money payable overall.
4. Monthly payments: Put considerable thought into the monthly payments involved. Although, it would be ideal to choose the loan with a lower monthly payment if you are just a startup, it is important to ensure that you don’t overstretch your financial capabilities. Evaluate what you can pay comfortably and promptly while still maintaining enough financial strength to keep your business afloat. Variable interest rates might provide lower monthly payments than others, it is still ideal to make sure it is within your affordability range.
5. Balloon payment: Balloon payments are usually employed when the loan term is shorter than the amortization term. A lump sum known as ‘balloon payment’ is paid at the end of the loan term. It must be planned towards and should be taken if you as a small business have a high credit score and loan repayment integrity.
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Loans can be a very important boost to a small business, but not knowing how to pick a good deal might end up crippling operations. It should be noted that careful thought should be put into any loan choice before opting for one.
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