4 Things to Consider When Choosing a Small Business Loan
You would be surprised at just how much money you need to invest in order to launch even the smallest of businesses. Sure, financing it all on your own may sound like the simplest solution, but this is something that you may A) not be able to do and B) not want to do it. Risking your personal assets for a business adventure that might not pay off, in the end, is not something that a lot of people are comfortable with. Therefore, you need to look at the alternative, which is usually a business loan. Here are four things to consider when choosing a small business loan for your next enterprise.
1. Your credit rating
The first issue you have to address when choosing a small business loan is your credit rating. Based on this score, credit unions and independent lenders make an estimate of how trustworthy you are. This can affect A) their willingness to approve you for a loan or B) the terms under which you receive the loan. Keep in mind that some lenders offer loans even to those with bad credit rating. However, they sometimes ask for collateral or a person willing to vouch for you (and pay in your stead), should the need arise. In most scenarios, however, you’ll just get a less favorable interest rate.
2. How much money do you actually need?
The second question you need to get an answer for is the one regarding the size of the loan. You see, sometimes, startups need a considerable amount in order to lay down the infrastructure. However, sometimes, we’re just talking about a loan for new equipment. In theory, you might need a small (for instance $1,000) loan, which is not something that all credit unions are willing to provide. Even if they do want to provide you with this loan, they might require a standard amount of paperwork, regardless of the modest sum that you’re applying for. In this case, considering caveat loans might be a much better course of action.
3. How soon do you need the money?
In other scenarios, the speed at which you receive the money will be paramount. For instance, you might have an opportunity that will be missed if the money arrives too late or an unexpected expense that you need to cover before the deadline arrives. In both of these scenarios, you need the money as soon as possible. Therefore, this becomes an incredibly important metric to watch out for when picking the right lender for your small business.
4. How much time do you have to pay it back?
The rate at which you have to pay the loan back is also incredibly important. For instance, some loans are so substantial that you might need to get a 10-20 years’ loan to return all the money. More often than not, startups take loans that can be repaid in 1 to 36 months. In this way, they can settle the issue as soon as possible. Another benefit of being able to pay off this loan as soon as possible lies in the fact that it helps you give your credit rating a quick boost. This is important for so many reasons and the ability to get a loan is just one of them. Your financial credibility and the terms of insurance also greatly depend on it.
Even if you believe that the time is not on your side, remember that the loan you choose might stay with you for months and years to come. This is why you need to take your time and review all the options that you have available. Only when you’re 100 percent certain should you feel comfortable enough to make a contact with the lender of choice.