by Jordan Richardson
It is one of the realities in the world of business, at one point or another, as a business owner you may need to take out a business loan. Taking out a business loan can be a difficult decision to make. You may end up having sleepless nights, getting stressed, and lose your appetite over it. However, when your business is in a bind, or if you want to expand your business, you may need to take one out.
The process can be confusing, and a single mistake can be financially damaging. This is why you need to understand what are the ins and outs of business loans. You need to know what to consider before taking out a business loan.
1. You should know how much money do you need.
As soon as you have decided that you need a loan, you should figure out how much you need. Make sure that you’re taking out just enough, not less than what you need and not more than necessary. If you take out less than what you need, you may end up needing to take out another loan. If you take out more than necessary, you may end up paying fees that you didn’t have to pay for with a lesser amount of a loan.
You should also take into consideration the rates and fees that may affect the amount you’ll receive.
Common loan fees that you need to prepare for:
- Borrower origination fee.
An upfront fee that you’ll be charged for the processing of your loan.
- Underwriting fees.
Fees collected for verifying and reviewing of any information that you’ve submitted.
- Closing costs.
These are the fees that are associated with the servicing of your loan.
You should also research if your prospects can provide the amount that you need. Some creditors can only offer a small amount of fundings.
2. Figure out what type of business loan you need.
There are a lot of business loans out there, so you have a lot of choices to pick from. Knowing the different types will also let you know if you have something to fall back on when you get rejected from your first option.
Some types of business loans:
- Short-term loan.
This type of loan is like any regular loan, but its term is shorter than others. You may need to pay it back within three to eighteen months.
- Equipment Financing.
This type of loan is made to help you pay for new or used machinery or equipment for your business. You will use the machinery or equipment as your collateral for the loan.
- Term loan.
This type of loan is a loan of large quantity with an interest that you need to pay for within a period.
3. Determine how soon do you need the money.
If you don’t immediately need the loan, you can postpone it and wait for the time when you will need it the most. By doing this, you’ll be able to prepare more before applying for the loan allowing you increase your chances of getting the loan.
Ways to increase your chances:
There are a lot of documents that you need to provide when applying for a loan; make sure that you have completed them beforehand.
You need to show that you can afford to pay for the loan with your current income, expenses, and wage settlements.
You can get references from people that you know to increase your credibility. You can also show your contract with your credit card, mobile phone, or home bills.
4. Check your current credit score.
Your credit score affects your chances of getting a business loan. This is why you should check your credit score so you can resolve any mistakes as soon as you can. The higher your credit score, the better your chances are.
Ways to increase your credit score:
- Eliminate your credit card balance.
If you have credit card balances, the creditors will think that you won’t be able to afford to pay back the credit card balances while trying to pay for the loan. So, if you can, pay off all your credit card balances no matter how small they are.
- Don’t eliminate old but good debt.
A former debt that you’ve managed well and paid is a good debt. If you have old obligations like these, don’t try to have them removed from your credit history.
- Pay your bills on time.
Paying your bills on time will make you look like someone who’s dependable and responsible for your payments.
Taking out a business loan can be your most significant financial decision that you’ll ever make. You might end up doing something that may follow you throughout the years. Mistakes potentially may result in the failure of your business. However, if you know how to do things correctly, you may end up doing something that will help boost and expand your business. Just take into serious consideration the things that we’ve listed above, and you’ll optimize your chances for success. You may also talk with people from this site if you’re interested in learning more about major financial decisions you might make for your personal or business finances, such as a low doc loan.
Jordan Richardson is a professional finance, business and Australian expat home loan expert who specializes in loans and other key areas of business. Jordan works hard to research and find the best business solutions for clients to ensure the very best results.