As an entrepreneur, one of the things that can make or break your business is credit. If you are not well informed, you might either end up not receiving crucial business loans, or end up accumulating bad ones that are counterproductive to your business. For the sake of your business survival, let’s look at the top 5 things entrepreneurs might not know about business loans.
- Business loans have different repayment terms that can impact on cash flows
When taking business loans, most inexperienced entrepreneurs go for loans that have fixed, one off repayment terms. Such loans can eat up all your cash flows especially, if it’s a startup that is yet to build strong revenue generating streams. To make the best of business loans without putting your cash flows at risk, go for installment loans. These allow you to repay over a longer period, in small portions relative to the amounts your business is generating.
- Business loans carry charges on top of the stated interest rate
Most entrepreneurs seeking to take business loans have no idea that there are other charges involved, and not just the annualized interest rate that the lender advertises. That’s why before taking a business loan, it is important for an entrepreneur to read the fine print of the loan contract. This is the best way to ensure that you are not hit with unpleasant surprises that might have a negative effect on your business, when it comes to repaying the loan.
- It is better to access a business loan from a small bank than the big banks
To a novice entrepreneur looking for business financing, it might seem attractive to visit a big bank with a fancy name. Unfortunately, big banks are structured to favor the needs of big business. To make the most of business loans as a small business entrepreneur, look for financing from small banks. They are more flexible and, and are more likely to tailor the loan to meet your business. This can go a long way in helping your business grow, since the quality of credit is part of what can make or break a business in its initial phases.
- Online business loan providers have quicker loan disbursement procedures
As an entrepreneur, you need a loan service that disburses your cash as quickly as possible. This allows you to quickly take advantage of arising business opportunities. To make the most of your loans, it is best to go to online lenders, since they have the best disbursement times. However, as an entrepreneur, you need to understand that online lenders also have higher interest rates to compensate for their quick disbursement that doesn’t involve much of due diligence on their part.
- The amount of loan should be determined by your cash flows
Most novice entrepreneurs get caught up in the borrowing frenzy, and end up over borrowing. This hampers their business growth potential over the long run. To make the most of a business loan, make sure you borrow an amount that is less than the current and potential cash flows in the medium term. This way, you can repay the loan, while at the same time sustaining the business and its day-to-day needs.