If your business is in need of more money in order to grow, you may find yourself in a position to take out a business loan. However, before you sign on the dotted line with the first financial institution to offer you cash, it is important that you take the time to consider many factors when determining where to get your business loan. Getting the right loan helps ensure you don’t overpay and you find the loan that makes the most sense for you and your business. Here are some factors you need to consider when determining what company is right for your business loan.
The Interest Rate They Are Offering
When you are taking out a business loan, it is extremely important to pay attention to the interest rate that a financial institution is offering you. There are many factors that affect the interest rate, such as current market interest rates and how risky the institution thinks it is to lend to you. It may take some time, but it is always advised that you take the time and compare the rates that are offered to you by at least three financial institutions. This helps you feel out what current rates are and helps you find a company that is offering you a fair rate.
The Amount of Money They Will Loan You
Another factor that you need to consider when taking out a business loan is how much money the financial institution is willing to lend you. Just because you walk in and ask for a certain amount does not mean that they will give you that amount. Some may give you a fraction of the amount of money you need. Unfortunately, if they are not willing to give you the full amount you need, the loan may not allow you to purchase the items you need or pay the bill you need to pay. As such, it is always worth your time to find out what the maximum amount of money that they are going to loan you will be.
If the Loan is Against Your Business or You Personally
Many business owners do not realize that a good portion of business loans, especially for those that involve newer businesses, require you to take out the loan in both the business name and your personal name. The reason for this is that if the business defaults on the loan, the bank can come after you and your assets personally. This helps decrease the likelihood of you defaulting on the loan. However, it is extremely risky to you personally to take out a business loan that could result in you having to file bankruptcy or losing your home if your business goes belly up before the loan is repaid. As such, pay close attention to this aspect of a loan and what is being required of you.
How the Loan is Paid Back
If you have never taken out a business loan before, you may not realize that it can work a bit differently than a personal loan. While some traditional loans allow you to make a fixed payment monthly, others take a percentage of your sales, either that are deposited in your bank account or from your credit card sales. There are pros and cons to both methods, so make sure you do your research and find out how the loan gets paid back.
If the Loan is Secured or Non-Secured
The last thing that you need to pay attention to when taking out a business loan is whether the loan is secured or not. If the loan is secured, you may need to put up collateral, such as business merchandise or vehicles or buildings the business owns. If the loan is not secured, you do not have to offer up any collateral.
Taking out a business loan can be ideal if you need cash to get you through a couple of slow months or need the money to increase the inventory for your business. However, taking out the wrong loan can be detrimental to your business. Always pay close attention to the interest rate a financial company is offering your business, how much money they are willing to loan, who the loan is against, how the loan is paid back and whether the loan is secured or not.
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