Whether you are looking to expand an existing business or start a new one, a business loan may just be a solution you need. But before you jump into a business loan, there are certain things that you need to consider.
A business loan is a type of borrowing for commercial organisations instead of just an individual. It is divided into two classes, secured and unsecured. A secured loan means that the business will serve as security. Failure to pay the lender means that they have the authority to sell your business so that they can be paid. An unsecured loan is the reverse of the first one. No asset is required to serve as security.
Here are the things you have to think about before securing a business loan.
The amount to be borrowed
Before you apply for a business loan, you have to make sure that you know how much you need. Acquire cost estimates for expansion, purchases and new projects, so you will have a clear idea of how much you need to borrow.
Choose the type of loan
The nature of your business will influence the type of business loan you need to have. The amount of your loan should also be considered for you to determine whether you should apply for a bank loan or other type of business loan. To ensure that you pick the right type of loan, you might want to consider hiring a commercial finance broker as they are experts in this field.
Make sure that you can pay off the loan
Just because your business needs £1 million doesn’t mean that you will borrow the same amount. You have to first consider if your business is capable of paying the amount due or else you might suffer the consequences. If you fail to pay the lender the amount due, you might be charged a fee. Also, some lenders report non-paying businesses which will surely affect your business credit record and may cause you to have difficulties applying for a loan in the future.
Look for the cheapest lender
Shop around! Look for someone who can lend you the amount you need at the lowest possible interest rate. Calculate how much will be the total cost before you agree onanything with a lender.
Mode of payment
Once your application has been approved and the money you borrowed has been credited to your account, you have to start paying the lender back. The mode of payment depends on the type of business loan you applied for but some of the most common modes of payment are direct debit, standing order, direct from outstanding invoices or a set percentage of your credit card income.
When expanding a business, it is important that you consider its current financial status. Verify if it is earning enough to support the additional cost of expanding the business, and if not, settle for what you have for now. There is always a better time to expand or even start a new business.