Business loans can play a crucial role in helping a fledgling enterprise get off the ground. After all, the two biggest reasons that new businesses fail are cash flow problems and too little capital at the outset. As such, sourcing a robust loan is a must for a majority of start-ups and entrepreneurs.
Having said that, it’s important to remember that not all business loans are created equal. Fortunately, there are websites that are specifically designed to help you find the best business loans for your needs, but it’s always a good idea to be mindful of which factors to consider when weighing up your options. Here are five of the most important things to look at during the comparison process.
The annual percentage rate (APR) is perhaps the single most important variable when it comes to choosing a business loan since this comprises the interest rate which will be incurred on top of the amount you borrow. As such, it’s likely to be the biggest expenditure that’s associated with the transaction, especially if the repayment period is on the longer side.
Some lenders specify that the loan must last for the agreed-upon duration, even if you find yourself with enough solvency to pay it off ahead of time. In these scenarios, the lender might impose a prepayment penalty upon you for doing so. This can take a number of forms but normally comprises a percentage of the outstanding loan balance. However, it seems nonsensical for you to be penalized for running your business responsibly, so it’s advisable to avoid loans that carry this stipulation.
Many business loans incur an upfront fee which covers the costs of administration and processing. This generally is calculated as a percentage of the total loan and, depending on the amount you borrow, and the terms of the loan in question can amount to a sizable figure. Given that it’s due upfront, as well, it can represent a serious roadblock for many business owners, so it’s good to be aware of how much you owe and when you should pay it before entering into any arrangement.
While all-purpose business loans are designed to cater to as wide a demographic as possible, it may be the case that your business is operating in a niche industry or under unique constraints which affect its operations. In this instance, it might make sense to seek out specialist alternative lenders who offer products specifically in your sector. Doing so could avail you of more flexibility and better repayment terms than the one-size-fits-all loans which dominate the market.
Reviews and ratings
In the world of business, it pays to do your due diligence before signing on any dotted line. That’s equally true for supply chain transactions, bulk material orders, and B2B deals as it is for taking out a business loan. Ideally, you’ll want to seek out lenders with A++ ratings, but browsing the reviews left by customers who have already had dealings with the company can be an equally effective method of determining their worth to your company.
As with any business decision, it’s advisable to take your time and survey your options when sourcing a business loan. Doing so ensures you get the most favorable terms and targeted services for your unique needs.
Featured Image by Credit Commerce on Pixabay